Whoa!

Whenever you get a low volatility trend -- either up or down -- sooner or later, volatility will re-enter the picture. And it will be contra to the extant trend.

"Well, gosh, David, that seems not only obvious but self-evident as well!"

Yes, it is, which is why I limit comments re the markets' general direction to infrequent updates such as the recent, "At 4 months old, it (this recent uptrend) is getting long in the tooth."

So, okay, yesterday ushered in a return of downside volatility. But what does it mean? Well, it means that markets are not one-way bets, and risk is always present. However, this go-round, things could be different; yesterday's decline could include trend-changing dynamics. For one, the US$ trends down, and nears a breakdown from a crucial long term level of support. $ moves almost always presage something big in the equity and credit markets; recall 1987 as only one example. Which leads to another cliche: Tighten your stops.

My apologies for the brevity of this post. Suddenly, my mouse does not work, and I am crucially dependent upon it. It moves about the page, but does not click on the items I point to. How, then, do I click on my portfolio items? Slamming it on the desk helps, but for how long? So I have just lost 1 hour attempting to isolate the problem (achieved), and correct it (no such luck). All suggestions welcomed.

Continued several hours later...

So these sudden squalls of price volatility come about seemingly at random, but are anything but random. In fact, so regular do they occur, that they should be expected. Technical analysis is all about this effort: to discern changes in price based upon pattern recognition, trend lines, etc.

Anyway, these squalls occur, and rarely endure. Due to changes in the backdrop, this decline could be different, although unlikely. Count time: these squalls typically endure 2-4 days. And even if the high for this move is 'in', some testing (of the recent high) is in order so that a top could form. Simple peak & trough analysis will help you discern the difference between landmines and goldmines.

-- David M Gordon / The Deipnosophist

Crossroads

Seems important to share the poem below, on this day in particular...

CROSSROADS

The second half of my life will be black
to the white rind of the old and fading moon.
The second half of my life will be water
over the cracked floor of these desert years.
I will land on my feet this time,
knowing at least two languages and who
my friends are. I will dress for the
occasion, and my hair shall be
whatever color I please.
Everyone will go on celebrating the old
birthday, counting the years as usual,
but I will count myself new from this
inception, this imprint of my own desire.

The second half of my life will be swift,
past leaning fenceposts, a gravel shoulder,
asphalt tickets, the beckon of open road.
The second half of my life will be wide-eyed,
fingers shifting through fine sands,
arms loose at my sides, wandering feet.
There will be new dreams every night,
and the drapes will never be closed.
I will toss my string of keys into a deep
well and old letters into the grate.

The second half of my life will be ice
breaking up on the river, rain
soaking the fields, a hand
held out, a fire,
and smoke going
upward, always up.

-- Joyce Sutphen

Happy Thanksgiving to All!

-- David M Gordon / The Deipnosophist

Entelechy

Reviewing the 'recommendations' in this month-old post encourages me; whereas I might struggle to regain lost momentum writing for this blog, the market continues to work for me.

In fact, it works for us all.... if you do not think too much. But that is a recurring problem that seemingly has no answer. The time to think is before and after the call to action (buy, sell); to paraphrase Jesse Livermore, "It is the sitting, not the thinking, that makes money." And, try as I might to encourage readers to recapture lost innocence -- to view again the unlimited upside potential of this or that opportunity (granted sufficient time, of course) vs the limited downside -- well, I captivate and convince few readers. Investors continue as they always have, arguing against a trend (up, down, or sideways) and refusing adamantly to climb aboard.

This 'action' is folly. Really, what do you fear? That the moment you purchase, the stock will decline, the trend expire? So what? If the decline exceeds your acceptable trading parameters, sell it and move on. Now, was that so bad, so difficult? Oh, you are still fearful? The market has climbed too far, too quickly? Then scale in; purchase smaller positions than you typically would. But get in there; get off your analytical duff; make money!

The current market up trend now is ~4 months old. Yes, it becomes long in the tooth, as trends go. But it has been so powerful, so profoundly bullish to date, that even if the rise were to end today, many more weeks, even months, would transpire to build a top. Meanwhile, many stocks will continue higher.

And that is the secret. Focus your attention on the investment opportunities, not the general markets. I will re-phrase that as an analog: when grocery shopping, your concern re the (super)market is the hours it is open; you go there only with shopping list in hand. If that list includes items temporarily not available, you flex and purchase other similar items or do without altogether. Try to perceive the investment markets similarly: open from 630am to 100pm pt, they exist to serve your needs. Trends, such as the up trend of the past 4 months, merely make it easier to purchase those items you seek, make quicker-than-typical profits, and sell the position to another buyer; in addition to direction and trajectory, trends provide liquidity. What more do you need to know?

I mentioned I just now reviewed the list of recommendations from last month. What do I see now...?
• Ambercrombie & Fitch/ANF -- In its first meaningful correction since emerging from its ~1-year base. ~$70 should prove itself to be support. Failure at that level, would usher in a deeper test to, say, $65-63.
• American Commercial Lines/ACLI -- Emerged in early-October from a picture-perfect intermediate term (IT) base, and now trends higher. Until the extant up trend expires, all declines should be of short term duration.
• American Healthcare Services/AHS -- Powerful pattern that appears headed, in time, for its all time high trade of ~$35.
• Apple Computer/AAPL -- New all time high and close yesterday. One of these days, the stock will gap up on the opening by ~$20-30.
• aQuantive/AQNT -- Well, the last earnings report failed to be the impetus to propel this stock over $30. Nonetheless, the stock continues its bullish ways, building an even larger base. Immediate resistance at $24-25.
• Chipotle Mexican Grill/CMG -- Doubters surround me re this opportunity. "But what about this or that?", they ask. I vote every time in favor of the markets' aggregate opinion. You might have concerns, but the market does not. At least not this season. It shou;d not be long before it too trades at all time highs.
• Clorox/CLX -- Massive base. It will emerge sooner or later; it is very near now.
• Colgate-Palmolive/CL -- same as Clorox/CLX
• Coca-Cola/KO -- same as Clorox/CLX
• Ctrip.com/CTRP -- Broke out early this month from another picture-perfect IT base. Now it hesitates and consolidates that breakout. Great opportunity to buy more shares.
• Garmin/GRMN --Questionable; might require a deeper decline - or more time.
• Genentech/DNA -- Still building its IT base.
• Google/GOOG -- New all time high yesterday; seemingly headed for above $600. And yet the doubters remain. Whatever.
• Gymboree/GYMB -- Seems to require a new IT base; thus, a decline toward the mid-$30s could occur now.
• Heinz/HNZ -- Good breakout from a powerful base. Hesitating briefly, before surmounting $50.
• Intuitive Surgical/ISRG -- Continues to build its IT base.
• Isis Pharmaceuticals/ISIS -- Exciting opportunity. New statin drug that has everybody buzzing. The stock climbs as a direct result. (Recall that the markets are a discounting mechanism; you invest today for tomorrow's results, tomorrow's profits.) Likely building now a short term base atop the larger base; $10 represents an excellent purchase point.
• Johnson & Johnson/JNJ -- Hesitating, as it builds a head of steam to breakout above $70 into new all time highs.
• Kimberley Clark/KMB -- See note re Clorox/CLX
• Level 3/LVLT -- Continues to build a huge base. (Or so I hope :-)
• PF Changs/PFCB -- A turn upwards from this price and setup resolves the pattern quite bullishly. But now is its moment of truth, or inflection point.
• Quicksilver/ZQK -- Continues to gather momentum to bust through crucial, trend-changing resistance at $15.
• Research in Motion/RIMM -- Seems to me investors everywhere worried about the wrong things. They simply missed this one.
• Salesforce.com/CRM -- Sold. Yes, it still looks higher in price, but I frowned on its lack of volume.
• Starbucks/SBUX -- A decline of sufficient depth, and I wil purchase more shares.
• Under Armour/UARM -- Just like Chipotle/CMG, doubters surround me on this company/stock. The comment that really startles me runs something like this, "But the stock is up from its lows!" So...? Consider how the chart will look from x point in the future looking back to today (base this judgment on today's setup and pattern) rather than considering the past chart action bringing itself, including you and me, to a precipice. (Another example of me torturing syntax!)
• Urban Outfitters/URBN -- Resolving its bullish pattern quite... bullishly. Yes, even deep declines in price equal as bullish action, IF you perceive the oft-mentioned and oft-desribed continuum.
• Whole Foods Markets/WFMI -- Remarked earlier, subsequent to the company's last earnings report, that a deep enough price decline will re-kindle my interest.
• Zumiez/ZUMZ -- Continues to build the afore-mentioned IT base.

To this list, I could add other possibilities. For example, Nucor/NUE...

[click on image to enlarge]

Really, now, "3 weeks tight"...? To my eye, this is a (short term) base atop a larger (intermediate term) base. Even a cup & handle pattern. If it is that, well one rule for the handle is that it does not endure beyond 3 weeks. What time is it? Oh, [it could go] right about now.

I welcome your questions and comments.
-- David M Gordon / The Deipnosophist

Pretty cool!

I think this site is pretty cool. So, okay, that might qualify me as a sap or a big sucker, but I still like it!

Update: Bad coding in the link has been corrected as of 8am pst.
-- David M Gordon / The Deipnosophist

Chipotle Mexican Grill/CMG

There is, elsewhere on the Web, a complete write-up of Chipotle Mexican Grill/CMG, even before I could say much of anything. (And it was to have been the next stock I updated; yes, I am that excited about this particular opportunity!) But this excellent review of Chipotle/CMG, done by Investors Business Daily, is quite complete.

Hurry on over and read the story, however, as the link will be valid only for today (Tuesday). After today, the analysis moves to the site's archives, where it will require a subscription to view.
-- David M Gordon / The Deipnosophist

Z Facts, and nothing but Z facts

Very interesting website. I admit, however, that I have had sufficient time only to discover its notability factor and (level of) interest score; its viability and truth require more visits and more delving.

What do you think...?
-- David M Gordon / The Deipnosophist

A "new" blog re investing

My friend, Bryan Gindoff, writes to say, "Just ran into this blog. Some interesting stuff."

Okay, before you say anything... I too cannot fathom how Bryan could write a 2 hour movie when his email messages are so... brief! (Somehow, I feel confident Bryan would say pithy! :-) Pithy or brief, I agree: interesting site. Check it out for yourself.
-- David M Gordon / The Deipnosophist

Quicksilver/ZQK

I receive emails wondering, "Why this?" or "How that?" -- especially when I offer a lengthy, if partial, list of those opportunities that beguile me now.

So, in the bid to offer connective tissue on the skeleton of that earlier post, I will irregularly offer added comments, as I did earlier this week re the pattern breakout for Heinz/HNZ. I also hope to offer some guidance in advance of those price breakouts, such as Quicksilver/ZQK, which really mystified many writers. ("I just do not see the pattern!")

I admit that, except for the well-trained eye, this pattern is not readily apprehendable to all -- when viewing the charts basis the daily bars. The picture coalesces, however, when looking at the weekly basis; the monthly basis reveals the incipient and building upside pressure.

[click on image to enlarge]

Does the weekly basis chart above reveal, or at least make more clear, the intermediate term base Quicksilver/ZQK has built nigh these past ~20 months? I highlighted several areas of note that might help.

I accumulated initial lots at ~$13 in recent weeks; I will purchase more shares on the breakout, if and when it occurs. When I approach that crossroad, the market will tell me what to do, when to do it, and how much of it to do.
-- David M Gordon / The Deipnosophist

In appearance

Just received this email message from Jim Othmer...

Good news for those sick of hearing me read the same endless passage from The Futurist.

The New York Public Library has a terrific program called "Periodically Speaking", supporting independent literary publishing and emerging writers. I'm going to be the token fiction writer (and perhaps the oldest emerging writer on record) representing two-time National Magazine Winner, The Virginia Quarterly Review. I'll be reading a short strange piece I did in their Fall '06 Writers on Writers fiction supplement. It starts at 6PM and they do a nice (free) wine and cheesesticks thing at the Library afterwards.

And after that I hope to gather a group to head over to the Gingerman for drinks.

The details from their press release:
The New York Public Library
COUNCIL OF LITERARY MAGAZINES & PRESSES presents
Periodically Speaking: Literary Magazine Editors Introducing Emerging Writers
November 14th, 6-7:30PM
The Virginia Quarterly Review, Soft Targets & Columbia with Ted Genoways introducing James P. Othmer, Dan Hoy, and Paul Killebrew & Thom Blaylock introducing Meehan Crist
The New York Public Library,
Humanities and Social Sciences Library
5th Avenue @ 42nd Street,
DeWitt Wallace Periodicals Room—1st Floor
Free admission.

Please use the 5th Ave. entrance. Visit clmp.org for more information.

Hope to see you, if only at Gingerman.
Jim

So here it is. This coming Tuesday affords you the opportunity to spend time with the witty and intelligent, James P Othmer. If you forgot how much I enjoyed his novel, The Futurist, please read my review here. You will find it approximately 1/3 of the way down the page. (And while there, please vote in favor of my review. I surely would appreciate your vote!)
-- David M Gordon / The Deipnosophist

Heinz/HNZ

The price and volume action so far today represents a classic breakout for Heinz/HNZ, as it zips right through resistance at $42.5-43/share. Total volume aggregates quickly, and block activity also increases from prior sessions.

I suspect it will set an early-AM high, retrace slightly, base throughout the day, and then probably push higher into the close.

All in all, a good breakout. Heinz/HNZ will prove a profitable trade.
-- David M Gordon / The Deipnosophist

Google: Chaos by design?

In my recent post, "Does confusion reign at Google", I attempted to reply to the notion that Google is a frustrated mess. The company might perplex many investors and analysts, but it should never vex you.

This recent FORTUNE magazine article, Chaos by Design, develops this notion even further.

What emerges from months of interviews with employees ranging from fresh-out-of-college hires to the CEO is that Google firmly believes it has a framework for figuring out the future. It should come as no surprise that the plan is as irreverent, self-confident, and presumptuous as the company itself. Google's executives don't articulate it this way, but the framework can be found in the title of Shona Brown's book: structured chaos. Indeed, along with Googleyness, chaos is among the most important aspects of Google's self-image. Understanding how Google thinks about chaos -- like Page's teachable moment after Sandberg's million-dollar mistake -- is critical to divining where the company goes next. "Are lots of questions hanging out there in the market?" asks Sandberg. "Sure. Because we don't always have an answer. We're willing to tolerate that ambiguity and chaos because that's where the room is for innovation." Good strategy -- if it actually works.

Excellent article, and worth your time to read. Even if you do not now own the shares.

Yet.
-- David M Gordon / The Deipnosophist

Google takes England by storm

Well, I said long ago that Google/GOOG would repeatedly surprise and astound the world, as it mounts its ascent to primacy. Despite the company's many and regular successes, this article proves that people -- in this instance, the Financial Times, the British media establishment, and its analysts -- can still be flabbergasted...

[Google's] "advertising revenue in the UK is expected this year to surpass Channel 4’s anticipated 2006 take of £800m. Within 18 months, it is forecast to overtake ITV1, Britain’s leading commercial TV channel and the country’s biggest single recipient of advertising revenue ... Media forecasters called Google’s rise “astonishing”. They stressed that their predictions depended on it maintaining its historic rapid growth in a more competitive UK internet market."

The complete article re Google can be read here.

From strength to strength. And yet the company continues to dwarf the expectations of its disbelievers... and its believers.

With the exception of one.

Thank you to reader, Bryan Gindoff, for referring this article to me.
-- David M Gordon / The Deipnosophist

Productivity slows, inflation picks up; Scylla and Charybdis

The following commentary is by Scott Grannis, Chief Economist at Western Asset Management.
-- David M Gordon / The Deipnosophist
================================
Nonfarm productivity was unchanged in the third quarter, which is not surprising since the economy grew at about the same rate (1.6%) as the growth in employment. This is a volatile series, however, posting numbers in the range of -0.5% to +10% over the past three years. But as the chart shows, the two-year trend in productivity has slowed rather significantly from the 3% or so pace we observed in the 2002-2004 period. Averaging 2% over the past two years, productivity is now right around its long-term average.

[click on image to enlarge]

I have argued for several years that accommodative monetary policy would result in an upward drift in inflation, and higher inflation, by restoring pricing power, would take the edge off productivity (it's a lot easier to raise prices than it is to cut costs). Slower growth in productivity would then drive a "downshifting" in the economy's growth potential. And here we are. Inflation has risen from 1% to 3%, and productivity has declined. From mid-2003 to mid-2006 the economy grew 3.5-4.0%, and over the next few years it is likely to grow in a 2.5-3.0% range, assuming no further declines in productivity and employment growth of roughly 1.5%.

The ISM manufacturing survey released yesterday squares with a reduced growth outlook. The manufacturing sector is still healthy, but the index has slipped enough to warrant a 2-3% growth expectation for the economy as a whole.

The Fed's output gap model of inflation is probably assuming that the economy's potential growth rate has slipped to just under 3%, so the Fed would view 2.5-3% growth as nonthreatening. But for the foreseeable future, the Fed is likely to be steering a course between the Scylla of 3% core inflation (above its target) and the Charybdis of a weaker economy (something the Fed finds very hard to resist). The Fed will be betting that any tendency toward slower growth will have the silver lining of reducing the inflation threat, thus obviating the need for policy shifts.

Meanwhile, the market is assuming that the Fed will be forced to cut rates three times next year in order to avoid the risk of a weaker economy, and it is assuming that core inflation pressures will decline. But risks remain: gold is rising, the dollar is falling, and nonenergy commodity prices are hitting new highs, suggesting that inflation pressures are not yet declining; tax revenues and profits remain robust, energy prices have dropped, mortgage rates have reversed much of their earlier rise, swap spreads are down, and equity markets are up, suggesting that the outlook for growth has brightened on the margin.