PowerInvesting Weekly Alert
May 24, 2008
Hello and welcome to this weeks
edition of the PowerInvesting Weekly Alert! As always, you will find
our current market analysis followed by the stocks we are currently
watching carefully. We expect these stocks to explode with quick
gains of 5-30% or more if and when they break their short-term
downtrend.
Recent Performance:
Despite a difficult couple weeks for
the market, most of our recent picks are holding their own and in
some cases swimming upstream against the downward market current.
DNR, featured a couple weeks ago, has made a nice move already
despite the S&P 500 going down more than 3% last week. DNR is up
more than 7% from our target entry in the past 8 trading days. PCLN,
our top pick a couple weekends ago, is trading within our $130 - $135
target entry point and looks poised to move higher.
Its no surprise that our defensive
stock picks from last weekend are outperforming. UN, a consumer
staple stock featured last weekend, lost only a fraction while many
top growth stocks lost 10% or more. FCN, our other defensive stock
pick from last weekend, is down this week but has not reached its
target entry point. Paid subscribers could clearly see that the
stock had not reached its target entry by viewing the latest chart on
the members-only site.
On the downside, we saw many top growth
stocks pull back last week. AKS and MTL, recently featured in the
Weekly Alert, both consolidated – giving back a portion of the
gains they have made since first appearing in the Weekly Alert this
year. AK Steel was our top pick last weekend and came down swiftly
with the rest of the market this week. The stock rebounded on
Friday, though, to be down just over 5% for the week on modest
volume.
The energy sector has been the place to
be this year. One of our top performers over the past couple months
is StatOil Hydro, an integrated oil play, (ticker STO). The stock
has soared 35% since being featured in the Weekly Alert in late
March! MUR, featured earlier in March, is up about 25% as well. And
Energen, a stock we picked in early April, has gone up more than $10
since we made the call. Nearly all of our oil & gas stocks
showcased in the Weekly Alert over the past few months are up big.
Other 'green' energy plays we have had in the newsletter, including
First Solar and Canadian Solar, are still up big after appearing in
the Weekly Alert in February of this year.
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Market Analysis:
We have been warning readers for weeks
now that this uptrend is occurring on lower volume than the last
market downtrend and is shaping up similar to last years uptrends which turned south abruptly. And last week our fears were validated. 2 more
heavy distribution days on all the major indices this past week. We
have now seen several large distribution days on the Dow in recent
weeks and at least 3 on the S&P 500. In our eyes, the bearish
reversal signal has taken place as institutions begin to liquidate
their positions. Before this week, we were looking to buy on
weakness. Now is the time to sell on market strength or get out
completely and not tamper with any head fakes the market gives in the
weeks ahead.
Analyst projections of earnings and
economic growth were assuming oil in the $80's or $90's. Not $130
per barrel. Many technical analysts were predicting a sharp
correction in the price of oil in the near-term. Its now looking
like this relief will not occur. This will likely bring down growth
projections, earnings estimates (outside the energy sector) and the
market as a whole. Last weeks price and volume action was the
'canary in the coal mine' validating this point of view. The big
boys are starting to get out.
The price of oil is making a parabolic
historic run which is shaking investors confidence. Oil has gone up
more than 30% so far this year with seemingly no relief in sight.
The price of other commodities have so
far held in check over the past few weeks but nearly all are in a
long-term uptrend. The market sorely needs the oil market to crack.
This would be evident by a close below the long-term uptrend support
shown below. Currently this support level is just below $100 a
barrel. More than $30 below the current price. Unfortunately, there is no signs of
this happening in the near-term.
A couple other negative events occurred
this week. The Fed made comments suggesting that they will not be
lowering interest rates further due to inflation fears. And the VIX
volatility index has broken a short-term downtrend and is heading
back to its former uptrend support. This change of trend in
volatility occurred just prior to the past couple market corrections.
The yield on the ten-year treasury is
still consolidating after closing above its long-term downtrend
resistance a couple weeks ago. Pullbacks in the yield going forward
are likely to be temporary as the trend is now changing to the
upside.
The correction has begun. We think of
corrections as shakeout periods where the best stocks prove their
metal and other stocks fall by the wayside. Some of the top stocks
in the market that are riding a long-term uptrend will hold up and
set up nice buying opportunities. Others will fall hard. The best
thing to do at this point is to wait to see which ones hold up well
under the selling pressure and later break their short-term downtrend with
a closing price. These stocks are likely to lead the market once it
rebounds.
* All charts below courtesy of Stockcharts.com.
S&P 500 Chart: (if you can't see this image, try turning image
filtering in your email. If you have Outlook, just double-click the
gray area below the subject line.)
Nasdaq Chart:
$tnx Ten Year Note (interest rates):
$wtic (Oil continuous contract):
This Weeks picks:
All of our picks are ranked in the top
5% of all stocks in terms of the following criteria at the time we
publish the Weekly Alert.
1) Increasing future earnings expectations over the past few
months.
2) Meeting and beating earnings expectations each quarter.
3) The reliability/track record of the analysts raising the
earnings outlook.
Paid
subscribers can click on the charts below from the members-only
website to see a more recent chart each day. This chart has the
stop-loss and target entry already drawn for you so you can quickly
see if a target entry has been reached or a stop-loss point has been
violated each day. Click
here to subscribe and see which
of our stocks are breaking out today!
POT Chart:
POT - Potash Corporation of
Saskatchewan, Inc. (PotashCorp) engages in the production and sale of
fertilizers, and related industrial and feed products in North
America. The company manufactures and sells solid and liquid
phosphate fertilizers; animal feed supplements; and industrial acid,
which is used in food products and industrial processes. It also
produces nitrogen fertilizers, as well as nitrogen feed and
industrial products, including ammonia, urea, nitrogen solutions,
ammonium nitrate, and nitric acid. Potash was first featured this
year on March 15th before it made a more than 30% move
higher. This is considered a defensive stock given the barrier of
entry involved in getting into the potash business and the strong
demand for food and fertilizer worldwide. Potash beat its
expectations by 13.3% to 14.5% according to Yahoo Finance the last
couple quarters. 2009 estimates have doubled (thats a 100% increase
folks) over the past 90 days. POT has the greatest planned capacity
increase over the next 10 years to increase its greatly needed potash
fertilizer production. This is one of the best technical uptrends
over the past year or so. Our target entry is once the price closes
above the short-term downtrend with a target sell price of $229,
keeping a portion of our shares until the uptrend shown above has
been broken with a closing price. Our stop-loss is a close below the
uptrend support shown above.
FSLR Chart:
FSLR - First Solar, Inc. designs,
manufactures, and sells solar electric power modules using a
proprietary thin film semiconductor technology. The company's solar
modules employ a thin layer of cadmium telluride semiconductor
material to convert sunlight into electricity. It sells its products
to project developers, system integrators, and operators of renewable
energy projects primarily in Europe. First Solar also focuses on
designing and deploying commercial solar projects for utilities in
the United States. First Solar was first showcased this year in
early February before it soared more than 50%. We also featured the
stock when it broke out of its recent cup-with-handle pattern in
March. After another nice move its now consolidating back towards
its long-term uptrend support. Consensus 2009 estimates have gone up
more than 10% over the past 60 days. Although the stock has a high
expected growth rate and has a strong tendency to beat estimates by a
wide margin, the PEG ratio is a little over 2 which is a bit rich.
However, FSLR is one of the best technical trends and growth stories
in the market at this point. Our target entry is once the price
closes above the downtrend resistance shown above with a target sell
price of $339, keeping a portion of our shares until the price closes
below the long-term uptrend support shown above.
CLR Chart:
CLR - Continental Resources, Inc.
operates as a crude-oil concentrated, independent oil and natural gas
exploration and production company. The company engages in the
exploration, acquisition, exploitation, development, and production
of oil and natural gas properties. It has operations primarily in the
Rocky Mountain, Mid-Continent, and Gulf Coast regions of the United
States. The company sells its oil and natural gas production to end
users, marketers, and other purchasers. This is probably the
strongest growth stock in the market today. Great growth, high
return-on-equity, and in the right sector in the middle of a high
tight flag pattern – arguably the strongest chart pattern. We
would have had this as our #1 pick this week if it were not for the
bearish reversal we saw last week. This pattern is more dangerous
during a bear market, but it warrants a 2nd look due to
the overwhelming growth and super technical setup. The company just
beat their expectations by nearly 10% this past quarter while 2009
expectations have gone up nearly 50% over the past 3 months. In
addition, one of their recent new wells is showing results 50% higher
than estimated. This announcement occurred this past week propelling
the stock higher. Big funds are starting to buy the stock as can be
seen on the chart above. Our target entry is once the stock closes
above the short-term downtrend resistance (the 'flag' portion of the
pattern) with a target sell price of $74.40. The stock has a huge
level of inside ownership and a low PEG ratio of just .54 with a 45%
expected earnings growth rate. Our stop-loss is a close below the
uptrend support level shown above. Be sure to put in a limit order
for your target gain after buying this one. Consider a stop-loss
order as well below the flag portion of the pattern after entering.
Ask your broker about OCO order (one cancels the other order) to put
both a sell limit and stop-loss order at the same time. The stock
has held up well so far during this market correction which is a good
sign.
BMI Chart:
BMI - Badger Meter, Inc. manufactures and markets products using
flow measurement and control technologies developed both internally
and with other technology companies. BMI just beat their earnings
expectations by more than 24% this past quarter while 2009 estimates
have gone up about 8% over the past 60 days according to Yahoo
Finance. Our target entry is once the price closes above the
short-term downtrend resistance shown above with a target sell price
of $57.90. Our stop-loss is a close below the long-term uptrend
support shown above.
The market trend will likely not be in our favor in the weeks
ahead. This is a good time for novices to be on the sidelines in
cash. We often see one more quick rebound after a bearish reversal
but then more downside after that. Be sure you are only selecting
the best stocks to trade with good risk/reward ratios at the point of
entering the trade. And definitely make the stocks above 'prove
themselves' by closing above their short-term downtrend resistance
shown on the chart before entertaining a trade.
Brian C. Neall
Founder - TradeToBeFree.com
email:
info@tradetobefree.com
www.tradetobefree.com
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