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Your Daily Profit

February 8, 2010

*****Who Dat?

*****TradeMaster’s Jason Cimpl

*****Small Caps

Fellow investor,

What a great Super Bowl game! I have to admit, I was pulling for the Saints, but mainly because of what the Saints mean for that city. I’m sure we all remember the horrible aftermath of hurricane Katrina. The very existence of New Orleans was in question. The Saints considered moving. And I recall suggestions that only the French Quarter be saved and made into a corporate convention amusement park.

Of course, that would have been an absurd commercialization of a proud and rich heritage. That New Orleans has come back to resemble the city it was before Katrina is nothing short of miraculous. And now the people of New Orleans have a Super Bowl trophy to crown their achievement. Congratulations, New Orleans and the Saints.

*****It’s tempting to extend the metaphor of New Orleans to the United States as we rebuild after the financial crisis. Of course, I have no doubt that we will recover. But there will likely be no single event that crowns the recovery like the Lombardi Trophy does for New Orleans.

And besides, we’re investors. It is our desire to be properly positioned for a growth in stock valuations, all the while avoiding the pitfalls of overvalued stocks and worsening economic conditions. 

Clearly, investors have been pondering the potential of weaker economy as some stimulus policies end, Europe faces debt problems and China moves to slow its economy. Bloomberg reports that investors pulled $9 billion out of global equity funds during the last week of January. And investors have bet heavily on an extended sell-off as evidenced by huge volumes of put option activity.

At the same time, 73% of S&P 500 companies have beaten 4^th quarter earnings expectations. That’s the best performance since 1993. Strong earnings, coupled with the recent 7.3% decline, have left the P/E for the S&P 500 at 18, down from 24. The forward P/E, based on future earnings expectations, is below 13.

*****I’m starting a new feature in Daily Profit, every day, I’m going to include some commentary from TradeMaster Daily Stock Alerts' Jason Cimpl. If you want to hear from someone who has his finger on the pulse of the market, it’s Jason. Please note, Jason’s TradeMaster service is geared for short- and medium-term trading.

In general, his commentary will give you a handle on the next few days of trading. I’ve also invited Jason to throw out some short-term trading ideas when the situation warrants, so we’ll look forward to that. Jason and his TradeMaster readers make both upside and downside trades. Today, he is covering a couple shorts from last week…

“…the SPX (S&P 500) was able to rebound from Friday's lows and close positive by the end of the session. Also, the dollar reached $80.68 last week and is trading above the $79 minimum target set forth by us in December of 2009. Although we expect the dollar index to hit $82 before a top is put in place, a pull back could start at any time. Combined, the SPX bullish reversal on Friday and pull back in the dollar could be a catalyst for a rebound in stocks.
 
 In fact, the SPX could form a three day bullish reversal pattern today if it opens above 1062 and closes above 1097. Either way, the SPX has clear support at 1045 so I changed our support price from 1039 to 1045 to reflect the strength.
 
Friday's close was bullish and as a result we are covering RMBS and SMOD at the open today.
 
 Along with bullish price action and a possible pull back in the dollar, the economic data is mild this week. This lack of activity could be bullish for stocks since the market has reacted mostly negatively to financial news this year…

 
 There is a nice opportunity for bulls to regain control of the market this week. The 1040's were defended and 1065 support was regained. Also, data showed the U.S. economy is still recovering. Overall unemployment dipped to 9.7% from 10% and U.S. manufacturing jobs payrolls increased 10,000 which is the first increase in three years. Today is a big day for the SPX. It needs to see some follow through buying and take back 1085. The longer it takes the SPX to overcome 1085 resistance the more likely lower lows become.”

If this sounds like indecipherable jargon to you, don’t worry, it will start making sense after a while. And please feel free to write with any questions or comments you may have -- editorial@247investor.com.

*****My Top 10Most Profitable Small Caps For 2010 Special Report has produced some excellent returns for readers. And with the potential for a rally coming, it may be a great time to buy some quality small cap stocks at attractive valuations. Click HERE for more.

Until tomorrow…

Ian Wyatt

Editor

Daily Profit