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 15^th 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 2^nd 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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