The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

29 December 2006

Some holiday revelry

A classic bit of hilarious fun that features Dean Martin and Foster Brooks...

Happy New Year to All!
-- David M Gordon / The Deipnosophist


28 December 2006

Google Testing Video Ad System

In yet another bid to expand its preeminence in the online ad market, Google/GOOG is testing ads in the online video market. This, according to Marketing VOX. See complete story below. (Thanks to reader, Bryan Gindoff, for the heads-up on this article.)
-- David M Gordon / The Deipnosophist
Google is testing in-stream video ads, hoping to eventually create a system, similar to AdSense, that pairs small-scale video creators and advertisers.

Google has recently begun airing 15-second commercials for Allstate in videos developed by, a producer of video interviews, AdWeek reports. The Allstate commercials were reportedly sold at $15 per thousand views, with the money split between and Google.

Google says the spots, which appear after the video, are a continuation of an earlier test of in-stream video spots that appeared after clips created by, which popularized the Diet Coke-Mentos viral sensation.

Google would likely pair the new system with video content on YouTube, which it recently acquired. One possibility is to use user-submitted tags for each video to determine the type of video ad to run after the video clip.

Google is also working with MTV to distribute ad-supported clips via its AdSense publisher network.


26 December 2006

Why Point And Figure Charts

In my chart deliberations, I use and share frequently Point & Figure chart analysis. Many people ask why. What follows is an answer by Tommy Dorsey at Dorsey Wright. (A technical analysis service I cannot recommend sufficiently often or highly. iow, subscribe!) A real time example follows that précis.
-- David M Gordon / The Deipnosophist

Many people have asked why we use point and figure charts instead of bar charts. We have no arguments with those who choose bar charts. An experienced practitioner can do quite well with them. They do show volume and P&F charts don't but analysis of volume is a deceptive and precarious process, particularly in the market of today with many computer programs doing program trading. In any event, if the volume is sufficient to cause a significant movement in price, this movement will be clearly reflected on the P&F chart.

Besides being difficult to read, daily bar charts easily can cause confusion. One frequently gets bogged down in trivia and loses sight of the overall picture. While this can be remedied by keeping weekly or monthly charts on the same stocks, why should one bother? If you keep P&F charts you get both the immediate and the long-term view. Listed below are the reasons we think point and figure charts are superior.

1. Formations are easier to recognize and interpret.
2. Trends are readily identified and trend lines can be drawn with amazing ease.
3. Frequently, valid targets can be established.
4. With one tool, the technician can see both the near term and long term position of a stock.
5. It is the easiest kind of chart to keep and therefore allows you to follow more stocks.
6. It enables the investor to do what he should do - stay on a winner while it is winning and get off a loser quickly.
That the NYSE Percent of Stocks Above Their Ten-Week Moving Average [
TWNYSE] gave a noteworthy sell signal. The TWNYSE is one of our two main short-term market indicators, with the other being the NYSE High-Low Index [HILO]. Although the HILO remains on a buy signal, yet up at lofty levels of 94%, the TWNYSE has moved to a sell signal, doing so by breaking a triple bottom at 68%. This comes after reaching a high of 82% in October. This sell signal is only the first "shot across the bow" with respect to our market indicators. Now we will watch for confirmation from the HILO, before taking a more negative posture with respect to the short-term. On an intermediate to long-term basis, our market indicators all remain on offense, albeit at very lofty, overbought levels. Overall, offense is still dictated, but in a more cautious fashion, requiring different kinds of plays, compared to back in June when our market indicators were bottoming out with more attractive field position. So now that we are up in the Red Zone, and seeing the first hint of deterioration (with the TWNYSE sell signal), it pays to stay alert and monitor the indicators closely. Of course, we will keep you posted to any key changes that unfold.

[click on image to enlarge]


25 December 2006

So, how's your sex life these days?

A very interesting article about a very interesting woman re the remaining shibboleth, sex. It was published ~3 months ago by The London Observer.
If sex - or rather, the lack of sex - in marriages and long-term relationships isn't a hot topic, it's because no one dares talk about it. On a personal level, we don't do it out of loyalty to our partners, or embarrassment because we feel on some level that we're failing (although we understand that almost all of us are failing in the same way), or because we believe that our sex lives are a barometer of our relationship as a whole. On a wider cultural level, it's just not considered sufficiently - sexy. And yet, we are surrounded by sex. By our single friends' rampantness, but also by the latest Durex report, which insists that the average Brit had sex 118 times - or a little over three times a week - last year. We know about - have even entered into - the debate surrounding Shortbus, the allegedly most graphic non-porn film ever made, which focuses on 'a polysexual New York salon', and features fellatio and threeways and gay sex - none of which is simulated. We know that British teenagers are having huge amounts of sex - unprotected and feckless sex - and that it's a problem. We are bombarded by highly sexualised imagery every moment of every day. But none of it seems to apply to us any more.
The article is laced with racy terms, facts, and 'bad' words' -- if you offend easily, please skip this post. It so happens I learned a lot from reading it, and thus share it with you. Of course, I seek your thoughts, comments, and opinions.

Happy Holidays!
-- David M Gordon / The Deipnosophist

Sunday October 8, 2006
So, how's your sex life these days?
If sex - or rather, the lack of sex - in long-term relationships isn't a hot topic, it's because no one dares talk about it. Or admit to it. Until now...
Polly Vernon

The Jewish Community Centre in Manhattan is housed within a well-maintained, moderately ritzy, medium-height skyscraper, which stands on the corner of 76th Street and Amsterdam Avenue in New York City's affluent midtown area. It serves as the focus for all manner of activities designed to appeal to the swisher, more intellectually adventurous elements of Jewish society. Programmes include classes in creative writing, and left-field indie cinema seasons; Texas Hold 'Em poker nights; and a series of events targeted at the JCC's lesbian, gay, bisexual and transsexual faction. Tonight, though, promises something special, even in the grand scheme of the JCC's eclectic and spangly schedule. Tonight, the JCC is getting an audience with Esther Perel: couples counsellor, nascent media phenomenon, card-carrying 'shock shrink' - and the world's leading authority on the sexlessness of the long-term relationship.

A substantial crowd is gathering to meet Perel. They're mainly women and exclusively Jewish, summer-cashmere-clad with matching mid-length hair, hair which tends towards frizz. They've come in pairs: mother and daughter pairs, and girlfriend pairs; although the occasional lone female settles herself a touch self-consciously into a seat, and the one couple that is in evidence - a twentysomething man and woman - are indulging in very pointed displays of physical affection. The crowd at large is aged anything from 20 to 60. They sit, and they wait. They want to know what Esther Perel has to say.

So do I. It seems to me that increasingly, sex is the preserve of single people. Or of people in the very earliest stages of relationships. Or, as a colleague of mine recently pointed out, 'of people who are married - providing they're having sex with everyone apart from the people they're supposed to be having sex with'. But mainly, sex seems to be for single people. Certainly, my single friends are the only ones who ever talk about their sex lives, sex lives that seem - from where I'm standing at least, neck-deep in a long-term relationship - to be impressively wild and decadent and to involve all manner of erotic adventures. Oh, they're having fun, the single lot! Male and female, gay and straight. The stories they tell! They've got their casual repeat fuck buddies and their one-night internet-approved hook ups; their tentative flirtations on public transport and their hilarious stories of sexual misadventure (' ... and so he tried to creep out without saying goodbye, how rude! But he didn't realise he'd need a key to get out the main front door, and so my flat door slammed behind him and bam! He got stuck in the hallway! Hee hee! It's my patented man-trap, you see?') Even when they're not having sex, there's some potential or other round the corner, or failing that, there's the yearning for it, the fluttering, the fantasising.

My married friends, colleagues and contemporaries, the long-termers, the co-habitees and the likes of me, meanwhile, do not talk about our sex lives. The more daring among us might joke in a wry, fleeting and mildly competitive fashion, about whom, among us, is having absolutely definitely the least sex. 'Three months ago this very night. Woo hoo! And it was crap!' 'Ha! Don't even talk to me until you've done a full year!' Et cetera. But largely, we avoid the conversation altogether.

If sex - or rather, the lack of sex - in marriages and long-term relationships isn't a hot topic, it's because no one dares talk about it. On a personal level, we don't do it out of loyalty to our partners, or embarrassment because we feel on some level that we're failing (although we understand that almost all of us are failing in the same way), or because we believe that our sex lives are a barometer of our relationship as a whole. On a wider cultural level, it's just not considered sufficiently - sexy. And yet, we are surrounded by sex. By our single friends' rampantness, but also by the latest Durex report, which insists that the average Brit had sex 118 times - or a little over three times a week - last year. We know about - have even entered into - the debate surrounding Shortbus, the allegedly most graphic non-porn film ever made, which focuses on 'a polysexual New York salon', and features fellatio and threeways and gay sex - none of which is simulated. We know that British teenagers are having huge amounts of sex - unprotected and feckless sex - and that it's a problem. We are bombarded by highly sexualised imagery every moment of every day. But none of it seems to apply to us any more.

It's as if we accept - on an individual, and on a broader social level - that we stop being sexual creatures the moment we settle with one person. As if the one thing that got us into our relationships - lust - is ultimately the one thing that's absent from it. No wonder we don't talk about it.

But Esther Perel does want to talk about it. A lot. She thinks she knows why sex falters in long-term relationships, and how to remedy it. She's dedicated an entire book to the subject. Mating in Captivity - Reconciling the Erotic & the Domestic is her first book, yet it's causing the kind of media furore publishers dream of. When her original synopsis was released tentatively to a selection of US publishers early last year, 14 separate houses picked up on it, and Perel had a bidding war on her hands. Rumours regarding its content started floating around on the internet, and suddenly Perel was being invited to guest on The Oprah Winfrey Show and on CBS This Morning. Early reviewers described it in rapturous terms: 'Fearless ...', 'Revelatory ...' According to The New Yorker: 'It reads like a cross between the works of [psychoanalyst] Jacques Lacan and French Women Don't Get Fat.' Little wonder that the JCC is all fluttery over Perel's imminent arrival.

Once her crowd is settled and sufficiently excited, Esther Perel enters the room. She's a good-looking, well-dressed and definitively minxy piece in her late 40s, though she looks younger. She's charismatic and sexy - she moves and talks and interacts in an inescapably sensual fashion, and she's got a pronounced Belgian accent which adds to the overall effect. Everything about her leaves you in little doubt that Perel (despite being married for 21 years, and despite having two sons under the age of 12) is having plenty of good-quality sex. She takes her chair, and she begins.

'Love,' she announces, in dramatic tones, 'needs closeness and intimacy and familiarity to flourish. Desire does not. Desire needs distance, insecurity, novelty and surprise. Desire needs tension, breaches and repairs. Love is not comfortable with fights, but desire needs fights. Fights generate energy, erotic energy - and this is not just desire for sex, but a general exuberance and vitality, an élan, an aliveness! We often judge couples on the amount they fight, like: "Oh, they have such a good relationship! They never fight!" And yes, I know of couples who never fight and do have a very good relationship - but they also have a sex life that is somewhat flat. Desire needs fights! Intimacy - that is, emotional intimacy - inhibits erotic expression. Desire needs edge! Love needs absence of sexual threat, but desire? Desire needs to know there are other options out there for your partner, that your partner moves out there in a sexual world when they are not with you, a world of other people who look at them, sexually. Love needs talk. Desire needs not to talk. Eroticism thrives in the space between the self and the other. In order to maintain a sexual edge in our relationships, we must learn to tolerate this void, these uncertainties. I wrote this book because, in 22 years of practice in six different languages [Perel speaks eight, but teaches, lectures and practices psychology in only six], I've met couples over and over again who were having a good relationship, who love each other, but who have no sex, no tingle! I met couples who had a bad relationship, and who I helped to have a good relationship again, and the expectation was that the sex would just come back - but it didn't. I began to think there's something in this premise - that if sex is wrong, the relationship is wrong; and equally that more talk, intimacy and closeness will equal more sex, better sex - that just doesn't work. I knew I was on to something.'

And so Perel begins, launching herself into a 90-minute discourse that dismantles all popular wisdom. She addresses honesty, 'which in American terms has come to mean transparency, this idea that the only way a couple can be healthy, or can heal themselves, is with absolute honesty. Come on! We need secrets! We can never know our partner completely, and they can never know us completely, and that's good.'

She addresses fidelity, 'or the shadow of the third, the fear of betrayal, the awareness of the people we could have had, the ones that reconfirm our choice. Or yes, we have affairs - and they can be fatal, or they can be the best wake-up call ever. I know couples whose relationships are much better in the wake of the revelation of an affair than they were before. We need to remember that we do not own this person sexually.'

She addresses fantasy, 'which is never politically correct, it's transgressive and about power, which is why it's so hot. It's about surrender, revenge, aggression, abandonment. You can transcend moral and social boundaries. But this idea that you should share your fantasy with your partner ... I think that's very risky. You should recognise your own fantasies though, because they reveal what you need, sexually and emotionally. Desire without fantasy is just arousal. Desire has a plot.'

And she addresses failing libido as a consequence of parenthood. 'You're too stressed and tired for sex? Like you weren't stressed and busy and tired when you were hot and single! What happens is that the erotic is transferred on to the child. Who gets the long languorous hugs, the playfulness, the fun, the fashion shows, the teasing, the multiple kisses? The child! It's often easier to say: "I'm so exhausted, I'm too tired for sex," when what you actually mean is: I have a sensual connection with my child, and I'm getting everything from him or her. On the list of what it takes to raise a happy child, you never see: parents with a good sex life. It should be there!'

So it goes on. Perel talks hard and fast and dirty, and sacred cows fall at a rate of about three a minute ('Talking is overrated. Especially talking to just one person'; 'Aargh, that collapsed, deadened state of togetherness, where only the WE prevails!'; 'I cannot stand this tendency to identify a victim and a perpetrator in an affair'; 'This idea that tenderness and emotional intimacy leads to good sex - I'm afraid it became current when women came into my profession.')

Perel's audience hang on her every word. They're shocked by her. I'd like to say that's because they're American and therefore somewhat puritanical, but the fact of the matter is that I am British, and I am shocked, too. Perel says the kind of things that are so contrary to popular wisdom, they actually sound blasphemous - and yet, at precisely the same moment that you're being shocked by her, you're also acknowledging the validity of her ideas. Perel's ideas are like the chorus of a really good pop song - instantly familiar because they resonate deeply. It's all rather terrifying in its intuitiveness and its pure rightness. I leave the JCC feeling rather buzzy, and rather exposed. By the looks on the faces of those around me, I am not alone.

I meet Esther Perel again the following day, in her Fifth Avenue offices (located, appropriately enough, two doors up from the New York Museum of Sex). She is, predictably, an even more intense proposition in a one-on-one situation. She's inclined to say very disarming things like: 'Hmmmm, you know, you're the first person to ask me so much about fantasy I think, ever.'

You mean, the first journalist? 'No. The first person. And she's also so fascinated by the erotic workings of every human mind that she happens to encounter, that she can't help but try and get a handle on your situation, sexually and romantically speaking, the very moment she meets you. She's so incredibly direct, and so incredibly comfortable with all permutations on sexuality and relationships, that she makes it very easy for you to disclose rather too much, rather too quickly, which distracts you somewhat from your actual purpose. But we somehow get to the interview in the end.

So. Esther Perel is 48 years old, a Belgian-born Jew whose parents survived concentration camps (which, she thinks, enhanced their lust for living and adventure immeasurably - although she knows nothing about their sex life); who has worked as an actress (which would explain the theatrical bent) and who has run a fashionable clothing boutique in Antwerp (which would explain the clothes). She trained as a psychologist in Israel, and then moved to New York, where she specialised in working with cross-cultural relationships. She believes that her own status as a foreigner working with people who are culturally foreign to each other has provided her with multiple perspectives on relationships, and a good grip on romantic and sexual universal truths. Now, she works with all kinds of couples, gay and straight, mixed or not. But always couples. What is it, I ask, about couples that is so fascinating to her?

'Ha! The drama!' she says. 'Couples are the best theatre around! What two people do to each other, it can be sublime, and it can be evil.' I have no doubt about that - even before she tells me that this week is proving to be a very bad week for affairs. 'I dunno why! It's a bad week. Ouf!' She sighs, flings her arms wide. 'You know, the phone was ringing all night, all night, I had about four hours sleep I think! And I got in this morning and the husband of this one woman, he calls because he wants to see me. His wife had an affair after coming to one of my readings. So I say: Why do you want to see me? You must hate me! And he says: I do! I do hate you! But ... you understand her! And it's true. He does.' (Perel is brilliantly indiscreet about her clients - while absolutely retaining their anonymity, she references them hilariously and in luridly colourful terms. They are more than case studies - they are her characters. In the book, she remarks, for example, that one client, 'Adele', is dressed 'simply and elegantly, though she's been meaning to do her hair for a while now, and it shows'. She recounts how another, whose husband was having problems viewing his wife as a sexual being after she'd given birth to their first child, charged him $100 for a blow job in the interest of helping him through his Madonna/whore complex.) 'Anyway. What do you want to know?'

Does sex even matter that much?

'Hmm. Well. I think sex for many of us is incredibly important. Of course, it is quite new this idea that you should have great sex with your husband. Our parents did not live with that idea. The idea that you would find passion with your husband was absurd! But now ... I suppose now the difference is we have a midlife and the things we suppressed our erotic instincts for are more established - our children are older, we have the house and the financial stability we craved - well then, we remember, don't we? Maybe a friend divorces and remarries, or our children are teenagers and bringing sex back into the house, and we watch them and we think: Can I still have some of that? Just a little bit? Because it is not just about sex, that urge. It's about vitality and the frisson, it's about aliveness and the connection, it's about renewal; and yes, I think most of us need that. And so we start to want it, and if it isn't there any more in our marriage - by which I mean, all long-term relationships - then we have affairs. It is often one person who wakes up one day, feels the tickle, feels the tingle ... and they know they're loved, they know they're so loved -but they want to be wanted again.'

But an affair needn't spell disaster? 'Affairs can go both ways. But yes, they can be the most effective alarm system I have ever known. Men and women have affairs for different reasons. Women have affairs to find a sense of themselves outside of the relationship and the family, so that they can be taken care of, so they don't have to do the taking care. Men do it for a sense of affirmation. But people don't have affairs because they want to hurt their partner. So you can vilify them for it if you want, but then: what have you got?'

Is there a good way to damage-limit the disclosure of an affair? To stop it being the end of a relationship, and instead use it as a springboard towards better sex? 'Hmmm. Well, this couple that is unravelling as we speak, the husband who called me earlier ... all I'm going to do with them is try and contain it. Stop them from doing anything rash, impulsive and unthoughtful, because they're both in a state of shock. The wife asked me: is it salvageable? And truthfully, it's often less salvageable when it's the woman who has strayed. But there is something he could do: he could stop continuously trying to find out details. This pursuit of truth as if it will somehow help you reclaim reality! Help you recover! But it won't. The truth needs to unfold in small doses. If at all.'

What makes a person so very clever regarding sex, I wonder. Perel claims she hasn't had amazing sex for the whole of her life. 'Ha! No! Not at all! You know, I wish I knew what I know now, when I had the face I had then.' But clearly, there's been something in her experience that makes her especially intelligent about it. So what?

She pauses. 'I suppose I am very comfortable with it. And I make people comfortable with it. I am comfortable with sex and I am comfortable with the erotic mind, which are two different things, by the way ... and I don't make judgments, which is not to say I don't get ... surprised, because, woo-wee! The things people concoct! But I am direct and ... you don't get away with stuff with me.'

I wonder if she's had much adverse reaction to what is, after all, controversial material.

'It's been OK, so far. I thought the feminists would come after me because, like I say, desire is not politically correct; but no. In fact, the young feminists are edgier than I am! And I thought the religious lot, or the extreme right ... but not yet. Although the polyamorous lot are cross because they think I'm promoting monogamy.' Is she?

'I never want to say: one way is right, and one way is not. I never want to tell people what to do.'

I've spent another hour and a half in the company of Esther Perel. It's a brilliant and stimulating experience, but also rather an exhausting one, and I feel a touch like I'm voluntarily subscribing to the cult of Perel. So I prepare to wrap up our meeting, but ask her if there's anything she thinks I've missed. There is.

'You know one thing, when I ask people: when was the last time you looked at your husband or wife, and you felt desire. And you know what they always say? Not: "When we were like this [she holds a hand up, very close to her face], staring into each other's eyes and holding hands." No.

It's always: "When I saw her giving some talk or some presentation, like at work or something, and she didn't even know I was there." Or: "When he was about to go windsurfing, and he was so in his own mind and doing something that had nothing to do with me or the kids." It's when they see the distance between them, when they recognise that person as completely separate from them! That's when they feel erotic desire. And that's what you must keep in a relationship, to keep the sex.' I think this is possibly one of the truest things I have ever heard.

As I leave, I pause to ask her what she wants from all this. 'Sexually? I am very interested in the challenge of my own menopause. Professionally? TV. Definitely TV. Like a Sex and the City for 40-something married people. But mostly, I want people to talk about this. I want to crack this nut. One review described my book as a tipping point. And that was very good indeed. Because you know, actually, I don't care if I'm right. I just care that people start talking about this.'


Economy still OK + inflation still a concern = Fed on hold

The commentary that follows is by Scott Grannis, Chief Economist at Western Asset Management.
-- David M Gordon / The Deipnosophist
For the past six months the bond market has been been betting that the bursting of the housing bubble would slow the economy so much that the Fed would be forced to cut interest rates (3 cuts next year is the consensus forecast as of today). But so far the bet is not working out. The housing bubble began to burst over a year ago, housing starts have plunged 30%, and mortgage equity withdrawal has slowed sharply this year, but the consumer is still in good shape. Real personal consumption expenditures have actually accelerated in recent months, recording a respectable 3.7% gain over the past year. This is not surprising given the continued strength in state and federal tax revenues, the bouyant stock market, and ongoing jobs growth, not to mention a relatively low 4.5% unemployment rate.

[click on images to enlarge]

Manufacturing activity has slowed, however, and business capital spending has stalled over the past six months, so the economy is not exactly the picture of good health. (Why are businesses reluctant to invest at a time when profits are going gangbusters? That's puzzling, to say the least.)

Real GDP growth was 3.2% in 2005, and it slowed to a 2.2% pace in the second and third quarters of this year. While this is unfortunate, the economy clearly has not deteriorated enough to provoke an easing response from the Fed, especially since inflation is not dead. The Fed's preferred measure of inflation, the core PCE deflator, is a bit over its presumed 2% target, and has been for almost three years now. Headline measures of inflation have dropped precipitously in the past several months due to a sharp drop in energy prices, but the inflation pipeline is not running dry just yet: nonenergy industrial commodity prices continue to hit new highs almost every day, and core crude materials prices are up almost 18% in the past year. The dollar is hovering very near its all-time lows, and gold is still trading north of $600/oz. At the very least, these indicators suggest that whatever problems the economy is having, it is not due to a shortage of liquidity; the Fed has not tightened enough to strangle economic activity. So it's likely that the economy can continue to expand at an unremarkable 2-3% pace.

In the unlikely event that the economy suddenly unravels or zooms ahead, or the inflation picture changes dramatically, it's hard to see a compelling reason for the Fed to do anything but just stand pat for the foreseeable future (3-6 months), as it has for the past four FOMC meetings.


21 December 2006

Chaos breeds opportunity

I detest making 'predictions' -- in particular, re the general market averages and their price oscillations. The fact is, as JP Morgan noted so many decades ago, "It (the market) will fluctuate." These fluctuations create our opportunities to buy and sell. My post, Battening down the hatches, which is more of a recognition of increasing risk and the need to monitor positions more closely, inspired a flurry of mail. First, a private message...

I think you've done a very good job of summarizing the potential state of play. I don't pretend to have any idea how things will play out, but your analysis is cogent and inciteful (sic). It is always a worry when leaders start acting badly. (For example, I was just looking at GOOG. This is nothing but an instinct, but for some reason it looks like a set-up for an island reversal. I don't follow it like you do, and I really have no particular opionions, but it just looks that way to me. My opinions on this subject are worth what you pay for them, if not less.)

And it's a big worry when all the market strategists are as unanimously bullish as they now are. However, I have also been observing the divergence between the way that this year's big winners (aka leaders) have been acting of late, versus the way some of the laggards have been acting. I have a gut feeling that there is a lot of year-end profit taking going on with managers who want to lock-in their year ('s return). Hence, the selling of winners and the accumulation of the beaten-down. I would not be surprised to see that pattern reverse after the first of the year. However, you are quite right: Prudence certainly dictates caution for those whose time horizons are not truly Long Term.

Well stated; I agree with your insights. I, too, note the emerging up trend in what typically is called large cap value stocks. The small cap growth stocks I prefer slowly and incrementally begin to under-perform both relatively (to the large caps) and absolutely (to themselves). So my warning, if you prefer to view it as such, is as much to scan for new opportunities in areas not typically explored by me. Large cap stocks fail to excite me because we all know their names, their products; as a class, they tend to be over-followed, over-researched, and over-owned. None of which argues profits cannot be had in this market sector.

So the market always rotates; from sector to sector, group to group, even within a group. A market decline need not beget a bear market akin to the one most recent (2000-2002); a typical bull market correction, however, still could see prices decline 30-50% from the highs and with many, many months elapsing before each stock re-emerges on the right side (up side) of the chart.

Is this truly an island reversal in Google/GOOG shares? Perhaps, but how predictive will it prove to be? At worst, arguably, Google/GOOG could decline toward ~$425 (~10% lower from here) before basing anew. This is what long term winners do; lead higher the general markets, correct, base, and then lead again. Certainly, I see nothing on the horizon that smacks of fundamental concern. (Well, there is a blossoming matter of corporate hubris that takes root; I hope reader, Ray Seakan, shares more of his experiences in this regard.)

So my argument is the same as always, MIM. For those new to that term (and this site), it is an acronym that stands for, money in motion. And what is wong with that? (The process, not the acronym!) Alas, I have the intestinal fortitude sufficient to hold for the epochal advances, less so for the epochal declines. So I buy and sell, moving to and fro, hither and yon. I will always be wrong in some fashion or manner or decision irrespective of my time frame. I no longer rage against the (market) machine in the attempt to be right; I accept my foibles, lackings, and failings for what they are and attempt to manage around them. I accept that reality with as much grace as I can muster. But all that is me; it need not be you, or anyone.

Greg Reiman comments publicly in response to the post in question...
[I] am trying to make money in a very short term time frame on this trade. LVLT could indeed be a long term winner, in fact I hope it is. But the short term trend looks down to me. I did consider the top 8 months prior but didn't think it fit the trendline properly.If I draw an ascending triangle, it has already violated that pattern to the down side. If it only declines to it's 50 day moving average soon enough I should make 100-300% profit on my options, if it trades down to the $5 support level with some time value left, I make even more, if it trades down to it's 200 day moving average I make 500% or better profit on the options. It fits my risk/reward goals.
That all sounds good to me, although I must admit you include many "if" statements in your thesis. Interestingly, the Wall Street Journal reports today that there are reasons to be wary of Level 3 Communications/LVLT.
The co remains saddled with debt, it is in a business that still has excess capacity, and it has reported a quarterly profit just once in its more than 20-year history. With the stock and bonds at lofty levels, it could be that any future possible good news already is priced in. Even bullish analysts acknowledge that to keep the stock climbing, demand for video and voice over the Internet will have to be strong enough to allow Level 3 to increase what it charges big telecommunications, cable and other businesses for access to its fiber network, one of the world's largest. Level 3 also will have to demonstrate that it can skillfully integrate a series of recent acquisitions. The co will also have to show that it is getting closer to pulling more cash out of its business than it is putting in. By one measure, Level 3 stock and bonds are a bit pricey. Its enterprise value is about 13 times the co's Ebitda for 2009. And prices for access to networks have fallen about 15% this year. While much slower than the 50% rate of 2004, that still is a troubling sign in a market where demand for network capacity has increased at a rate of about 60% a year in the past two years. The capacity glut is so huge that it could take years before it is filled up.
Okay, so much for the bear's thesis. But we already know all this stuff. Sheesh. Instead of derogating a stock that likely builds a massive, long term bottom, look for the reasons why the market slowly but surely turns increasingly bullish. Reiterating yesterday's news will not help that effort.

But back to the stock and your trading thesis. I differ with you in strategy. I prefer -- nay, I insist -- that the stocks I purchase long must be market leaders. (A topic I have oft discussed here.) If I seek to short a stock, then I insist it be a weak stock in a weak group with terrible fundamentals. (Of course, it becomes a horse of a different color if we differ as to whether LVLT in fact builds a long term bottom.) Investing with such a strategy brings you around to have the wind at your back, not in your face.

Terry Griffin's comments offer fodder for thought...
I don't know why, maybe a psychological flaw, but my adrenaline always races when I see a post like this from you. Chaos begets opportunity?
Yes, absolutely correct. Investing never has been nor will it ever be a one-way street. Risk is the yang to the yin of reward. Accept each, embrace each, and factor into your analyses the continuum and you will see... truth. (Whew, did I really write that?) No longer will you invest with your eye cast backwards to what the stock has done, but forward to what it has yet to do.

Consider Under Armour/UA. From a new all time high at $54, it reversed and traded down to $48.75 (very near the $48 support I limned in advance) before reversing up. Which all means the stock traces out something of an area pattern between $48 and $54. With that knowledge, an investor could (would, in my case) buy the declines to ~$48 and sell the rallies to $54. And then will come the moment of clarity; a moment not far away, if I am correct.

During any decline, watch price action, volume, and relative strength (as caculated by Daily Graphs) for emerging leaders. Use the Daily Graphs sector analysis to find groups and sectors on the move. This is one of the best tools out there, bar none.

Money in motion, and all within the continuum. Yeah, that's the ticket.
-- David M Gordon / The Deipnosophist


20 December 2006

Google Checkout - NY Times

Interesting article in today's edition of the NY Times (free registration required) re Google Checkout...
When Google/GOOG introduced Checkout in June, it was seen as a formidable rival to PayPal. And with Google aggressively promoting Checkout during the holiday season and beyond, its use with some merchants has already surpassed PayPal's. But Google's plan for Checkout has always been about more than online payments. The service is a calculated effort to expand Google's base of advertisers, which provide the bulk of the company's revenues. And Google has made a substantial financial commitment to the service's success. Goldman Sachs estimates that Checkout promotions will cost Google about $20 mln in the current quarter. The campaign to promote Checkout also says something else about Google: As rivals Yahoo (YHOO) and Microsoft (MSFT) are working on getting the basics right in their search and advertising systems, Google is racing ahead to consolidate its lead. "I believe that Google's advantage is widening with time and this is one example," said Scott Devitt, an analyst with Stifel Nicolaus. "Checkout could be a game changer, and the competitors are doing nothing of the sort." Google has not released figures on the number of Checkout users. Still, there are signs that with the heavy promotions, the service is making significant inroads.
-- David M Gordon / The Deipnosophist


19 December 2006

Google's Zeitgeist

Google Year-End Zeitgeist Highlights Most Popular Search Queries and Trends of 2006
Social Networking Sites Top the List This Year's Most Searched Queries

Google today announced its annual Zeitgeist, featuring lists and charts of the most popular and fastest-rising global search terms that people have typed into If you're interested in revisiting this year's top scandals, or learning who wins in a Suri vs. Shiloh face-off, or which sport is most popular -- visit Google's Zeitgeist to read all about what spurred people's collective curiosity in 2006.

This year's Google Zeitgeist reveals the following trends:
What's hot: the who, what and how of what's being searched
Current events: top searched scandals, political figures and global regions
Milestones: most searched divorces, weddings, deaths and births of 2006
Entertainment: what movies and TV shows were hot this year
Sports: top searched sporting events, who retired and whose jerseys were most sought after.
SOURCE: Google Inc.


18 December 2006

Battening down the hatches

Three weeks ago, on 27 November, the markets suffered a nasty 1-day decline. I argued then, in my post, Whoa!, that the market's backdrop was worsening; however, even assuming that analysis as correct, the market yet had some (upside) life remaining...
"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... [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."
Well, yesterday's market action, examined apart from other factors, concerned me enough that I began to hedge -- and even to sell some -- of my portfolio's positions. There are several items of alarm to note; I list only two:
• The VIX index (measures volatility) traded at a new multi-year, if not all time, low before reversing. Does this low and reversal presage a bout of extended downside volatility?
• The market's leaders (the grouping from which I like to own) now, and suddenly, lead to the downside.

Consider the many stocks listed in the Entelechy post; many turn tail from recent new highs. For example, NuCor/NUE broke down from a nice base and burgeoning up trend. (Previously warned.) Or Google/GOOG's ugly price and volume action (yesterday); not only breaking down beneath various levels of price support and its 50 day simple moving average (sma) but doing so with explosive and unrelenting volume. (GOOG likely will retrace to ~$475.) To those two, you could add Under Armour/UA...

[click on chart to enlarge] © Daily Graphs

When examined in a vacuum, yesterday's price reversal (see highlighted price area) -- from a new all time high to a negative change on the day and very close to its intra-day low -- is not especial cause for concern. Such a reversal typically would set up the chart action for several weeks of meandering as it builds a short term base. This time, due to the market's possible future action, it instead could be a short term top. From such a pattern, I would expect it to decline to ~$48, and breaking beneath that level, then accelerate toward $42-38. This possible decline does not end my bullish thesis for the company and its shares, it merely would interrupt it.

How and when might this market decline transpire, if [I am] correct? I would expect the ferocious portion of the decline to begin sometime within the next 5 days to 5 weeks. An arguably good single data point would be Tuesday, 2 January (2 weeks from today) -- when a typical up opening could be followed by an intra-day reversal and hugely negative close. This represents typical price action and is to be expected. Whether it occurs has yet to be determined.

Knowing only what I know now, I doubt the decline would be more than a trader's break, albeit one with an intermediate term periodicity (1 to 6 months). During such a decline, I would expect many stocks to breach their 50-day sma and then decline to their 200 day simple moving average; some would exceed that measure, others would hold there, and a few would decline not even that deep.

This post serves not as a prediction, but as a recognition of increased and increasing risk; money management, pure and simple. I do not intend this post to institute a breathless, mindless, panicked rush to sell out your portfolios. As always, examine well the merits of each portfolio holding; you might sell all shares, sell only some, hedge positions, sell short, or even ignore this 'warning' due to your long term investing time frame. Or you consider your ability to dodge possible bullets mandates you remain long and unhedged. Or you consider my analysis and perceptions to be incorrect, and thus invalid for your purposes.

But after a lengthy period of fattening your wallets, now might be a good time to consider battening down the hatches. I used to think I could buy or sell at the optimal moment; I no longer think or even try for that. The big declines of yesterday could pale in significance to what is coming. In such an event, I would rather have cash or be hedged. As always, new winners will emerge during such a decline (should it occur) -- it is always thus. Nonetheless...

Caveat emptor.
David M Gordon / The Deipnosophist


15 December 2006

Under Armour/UARM - a P&F chart read

The comments that follow are from Dorsey Wright, specialists in Point & Figure (technical) analysis. Please note that DW's comments (specifically, the $82 objective) validates Allan Harris' analysis offered in the earlier post (re UARM) comments area.

For those who wonder, Dorsey Wright provides a fine analytical tool that itself offers a parallax view on perceiving market action. Of course, PnF charts are available everywhere, albeit not necessarily with the interpretataions of seasoned, wise traders. I like the service; you should sample it, if not subscribe.
-- David M Gordon / The Deipnosophist

Under Armour, Inc/UARM ($49.560) is a member of the Favored Textiles & Apparel sector; and with its Sector BP (bullish percent) still in X's and not yet above the 70% level, this is a sector to consider when trying to find new ideas. UARM is one of the better looking names in the group, as evidenced by its 5 for 5 technical attribute reading. UARM not only trades in an overall uptrend, but the RS (relative strength) chart just gave an RS buy signal in June of this year.

Currently, UARM is:
On a triple top buy signal, which was given at 50 and also took the stock to new highs.
• There is good near term support in the 44-45 area.
• The upside price objective for UARM is 82.
• So the recent pullback to the 49 level sets up the potential for a bullish catapult formation, but also improves the risk-reward for new positions.
• The weekly momentum has been negative for six weeks now, and is likely to turn positive with today's action.
• The first viable stop loss/hedge point is 43, which breaks two bottoms.

Ok to buy UARM here and on any further pullback; as well, those a little more conservative can consider a covered write on UARM.

[click on chart to enlarge]


Killer App?

With Google's prowess, online videos -- arguably, the Internet's fast-rising killer app* -- now are searchable, provide a new venue for untold new heights of advertising revenues, gain legitimacy, and make a good thing even better.

Thus making even more interesting these projections from eMarketer that video is the Internet's killer app, confirming John Chambers' (Cisco/CSCO CEO) comments (stated again earlier this week at a Cisco sales conference)...

More people than ever are watching more online video more frequently. But despite the surge in viewers and available content, the medium isstill nascent. A number of issues must be settled in order for theadvertising market to develop, according to eMarketer's report," Internet Video Audience. eMarketer estimates that over one-third of the US population will have viewed video on the Internet at least once per month on average during 2006. By 2010, the US Internet video audience will have grown 45.8% to 157 million, up from 107.7 million this year." For all the clips playing, online video advertising currently comprises just 2.6% ($410 million) of total Internet advertising spending ($16.4 billion) this year. Video still has a long way to go. Clips are still fuzzy or halting online. Also, because there is no search engine for video, users can't navigate to videos advertisers might be sponsoring."
In light of these comments, does the marriage between YouTube and Google/GOOG still seem sudden or ill-thought? Or expensive?

*Oh, and so long as I mention killer apps, there comes this video on YouTube (natch)...

Watch closely...

-- David M Gordon / The Deipnosophist

13 December 2006

Fed policy -- strange bedfellows

The commentary that follows is by Scott Grannis, Chief Economist at Western Asset Management.

-- David M Gordon / The Deipnosophist

The effective stance of Fed policy arguably is best measured by the level of the real Fed funds rate. High real borrowing costs tend to discourage borrowing, encourage saving, and increase the demand for money, and thus tend to be disinflationary, while low real rates tend to be reinflationary. By this measure, Fed policy has been relatively stable for most of 2006; even though the nominal funds rate has risen from 4.25% to 5.25%, inflation has been moving higher for most of the year, resulting in little change in the real rate. By my estimation, the real Fed funds rate will average about 2.7% this year, and that is a bit less than the 3.1% average during the disinflationary 1980-2003 period, during which time inflation fell from a high of almost 10% to a low of 1%. (I'm using the core PCE deflator in these calculations, which is the Fed's preferred measure of inflation.)

[click on chart to enlarge]

The FOMC statement today suggested that the Fed is prepared to wait at least several months, and possibly several quarters, to see how inflation pressures, which they currently classify as "elevated," respond to past tightening actions, a slower-growing economy, a weak housing market, and lower energy prices, all of which are thought to be disinflationary. The bond market has already decided on the outcome, betting on moderate growth, falling inflation, and a reduction in the funds rate target to 4.25-4.5% by the end of 2007.

Arguing against a cooling of inflation, however, is the behavior of certain key market prices that respond to monetary imbalances. So far this year the dollar has lost almost 10% of its value against other major currencies, and about 20% of its value against gold and nonenergy industrial commodity prices. This suggests that although a 2.7% real funds rate might well be "average" and close to a level which in the past has been disinflationary, in the current climate it may not be high enough.

The yin and the yang of monetary policy is a complex interaction of supply and demand dynamics that can take many months or even years to manifest itself in the general price level. It's part art and part science, with a dose of politics thrown in, all taking place in a global setting with few absolutes. Treasury Secretary Paulson later this week will urge the Chinese government to continue revaluing its currency against the dollar, a move which would likely result in the dollar losing even more of its value relative to most Asian currencies. Paulson will essentially be arguing for a reduction in Asian demand for dollars, at the same time his fellow traveller, Fed Chairman Bernanke, will presumably be reassuring the market that the Fed will be vigilant in safeguarding the dollar's value, something that is hugely important to a region of the world that holds a sizeable quantity of dollar-denominated bonds. Strange bedfellows indeed, working at cross purposes in an oriental setting. Paulson's success would only complicate Bernanke's job, making it less likely that the Fed could ease policy as much as the market is now expecting.


Consistency Is The Key

The excellent commentary that follows is by Price Headley, proprietor of Big I hope Price does not mind I share it here in full, but it is that worthy of your attention. Check out Price's site for other excellent comments.

-- David M Gordon / The Deipnosophist

One of the widely accepted conventions of trading is that erratic returns are just part of the game. Some trades will be great, some will be mediocre, and some will be awful. But if you want to make it big in trading, you have to be willing to take some losses if you want to make some big profits, right? Maybe, but when given the choice, it may be just as wise to be consistently profitable in small ways, rather than look for the diamond in the rough. In the following example, we'll compare the difference between the two types of trading.

In our first scenario, we start with a trading account worth $10,000. We'll say we get an 5% return each month on the previous month's balance. After doing this for twelve months, we end up with an account balance of $17,958.56, or a 79.6% return for the year. That's not bad for an average monthly return of 5%.

[click on table to enlarge]

On the other hand, we could 'go for broke' with our $10,000 account. Here we'll be highly aggressive in search of big rewards, and we'll just deal with the fact that some months will be rough. That, after all, is the price you have to pay to get those stellar returns, right? After twelve volatile months, we've actually gotten the same monthly average return of 5% - we've just done it erratically. Even with the same monthly average, those few bad months really took their toll. This volatile account only achieved a 75.6% return - considerably less than our consistent account that gave us 5% per month.

[click on table to enlarge]

This is a testament to the importance of consistency, and capital preservation. In our second scenario, the reason the great months didn't help was because we had less capital to invest following a losing month. Remember, it takes a 100% gain to offset a 50% loss. And while the difference between these two returns may seem trivial, if you compound this over several years, it suddenly won't seem trivial. In fact, the difference between these two portfolios after five years of the same kind of consistent (or inconsistent) returns is nearly $20,000.

By the way, it doesn't matter how you sequence your gains and losses in scenario two - the average monthly return and the bottom line remain the same. Don't plan on taking your losses early and 'making up for them later', as it just won't help any.

So are we saying that we should all start looking for trades that are smaller - but more frequent - winners? Not at all. We have plenty of services that "swing for the fences". We're just saying that your overall results should be enhanced rather than hampered by volatility. To really find out if it is, I'd recommend that you track your trading results (returns on each trade, and success frequency) on at least a monthly basis.

Trade Smarter,
Price Headley, CFA, CMT
President & Chief Analyst

11 December 2006

Whence and thence

Readers wonder, and ask often, whence come my investing ideas. No real surprises there -- from the usual suspects; either my familiarity with the company, its product or service, investment reports, or market action. My most reliable source, however, is from you.

"What do you think of this or that company or stock?" is the typical opening question. Included is an explanation of his or her interest. So I investigate. The first place is the historical chart: How compelling is this opportunity to consider it now? For example, I received during the weekend this message,

"I read your article on Under Armour - it was very interesting. I actually work with a company called Tefron/TFR that supplies Under Armour with a lot of their performance sportswear (as well as to Nike). I would be interested in hearing what you think about it."

And so I look immediately at the historical chart of Tefron/TFR...

[click on image to enlarge]

"Whoa!," I think. "Looks very interesting, enticing, even arguably immediately actionable!" Why is that? Because the rise in price from the bottom-clearing breakout above ~$6 (not drawn) during August 2005 until the reaction high trade of $13.73 during May 2006 was accompanied by an explosion of daily volume. I will confirm it next but can guess now: this company is in full turnaround mode. Turnaround, however, from what? How bad was the slump? How strong the recovery? Will that recovery continue?

These questions I will answer later. ("Answer" in the sense of best guess; none of us know the future.) So next I wonder, "Who wrote me?" Fortunately, the writer provided links, and I discern immediately the quality of his particulars and cv; he knows whereof he speaks.

Back to the charts. I focus next on the daily bars...

[click on image to enlarge]

"Whoa, redux!" Not only is Tefron, in a seeming turnaround, but its shares (TFR) scream, "Buy me. Now!" I see the powerful uptrend (already noted) with the comparatively massive and explosive volume; not solely leading, but also participatory. Investors want to own this stock despite rapidly climbing prices. The last 6+ months have traced out a very shallow decline, another designation of investors' demand for the shares. This will complete itself as an intermediate term base once through the line of declining tops (shown).

"Tefron manufactures intimate apparel, active-wear and swimwear sold throughout the world by such name-brand marketers as Victoria's Secret, Nike, Target, Warnaco/Calvin Klein, The Gap, Banana Republic, Mervyn's, Puma, Patagonia, Adidas, Reebok, and other American retailers and designer labels. Through the utilization of manufacturing technologies and techniques developed or refined by the Company, Tefron is able to mass-produce garments featuring designs tailored to its customers' individual specifications. For the nine months ended 30 September 2006, Tefron's revenues rose 10% to $138.1M. Net income from cont. ops. totaled $13.6M, up from $4.6M. Revenues reflect increased sales across all of the Company's product lines. Net income also reflects higher gross margins, lower financial expenses, improved operating margins due to increased production & lower labor costs."

The company stated only 4 months ago (Q2 earnings report), "Looking ahead, the company believes that it will achieve its target for 2006 of mid-teen percentage growth in revenues and profitability levels higher than those of 2005, at around the levels seen in the fourth quarter of 2005."

Hmmm, as a turnaround opportunity, this company and its shares become increasingly compelling. With this limited information, then, the game is afoot. How much more might I discover, how much more might I learn before this stock breaks out with renewed vigor to the upside? Because that is precisely what the stock has prepared itself to do. Go up. So the odds are that I will purchase soon an exploratory lot -- to establish an initial position in advance of the eventual lift-off from this base and while I do more investigatory (gumshoe) work. ("The soles of my shoes, Watson, wear out quickly!") Tefron, as you would imagine, is under-followed by Wall Street; another reason for my interest. Such lack of notice provides added goose to the upside as the analysts finally chime in (when they note the rising price and trend).

I do note, however, one caveat, one cavil: its average daily volume is so thin as to be comparatively illiquid. I want to participate but not initiate; i.e., I want to participate in the stock's rise, not initiate it. Too, I do not want to become the market -- both buyer and seller -- so my need for sufficient liquidity, offset by my portfolio's requirement for profits, has me return to the notion of money management: How many shares could I purchase that would make a notable impact on my portfolio's return on investment vs the seeming illiquidity. Aye, and there's the rub: seeming illiquidity because the average daily volume will increase as the share price trends higher.

So that is how I get from there to here, or whence and thence. More due diligence yet remains, and yet I know enough that I could purchase now the shares and make money. Again I think of the reader/writer... Thank you for bringing to my notice this opportunity. Write me again. Anytime. Soon, even.
-- David M Gordon / The Deipnosophist


09 December 2006

The Modern Man

George Carlin on the "modern man" -- a clever, caustic, and funny routine!

Pando Package

The video is ~7Mb, so I have uploaded the file as a Pando package. If you do not already have Pando, get it now. To learn more about Pando, please view my post, Magic.
-- David M Gordon / The Deipnosophist


07 December 2006

Form fitting

Doubters to the right of me,
Doubters to the left...

Hmm, I might have some trouble making those opening lines into a memorable cheer. Nonetheless, despite the rampant doubt and disbelief that surrounds me and the investing opportunity this company manifests (oft recommended; most recently in the Entelechy post), Under Armour/UARM requires no cheerleading; it is doing just dandy on its own.

"Under Armour/UARM, formerly KP Sports, is engaged in the design, development, marketing and distribution of branded performance products for men, women and youth. The Company designs and sells an offering of apparel and accessories that utilize a variety of synthetic microfiber fabrications. Its active wear and sports apparel accessories are designed to wick perspiration away from the skin, help regulate body temperature and improve performance regardless of weather condition. The Company's three primary gearlines are marketed for consumers to choose HeatGear when it is hot, ColdGear when it is cold and AllSeasonGear between the extremes. For the nine months ended 30 September 2006, Under Armour's revenues increased 52% to $295.4M. Net income applicable to Common totaled $27.1M, up from $10.9M. Revenues reflect an increase in sales from the Mens, Womens, Accessories & Youth products, and an increase in Licensing revenues. Net income also reflects the presence of interest income vs. expense."

I like this quote from a recent IBD article on the company:
"Its credibility with athletes sets Under Armour from at least one rival," Horan says. "If you think about it, the kids in the band wear Nike and the jocks wear Under Armour."
True, very true; its athletic apparel hugs the body. While I lack the physique ("Hey, I'm working on it!") to clamber into Under Armour's truly athletic apparel, that reality does not lessen my appreciation for its quality. Of course, the company creates and sells plenty of technical gear for the rest of us, me included.

The shares, as you would imagine, reflect the company's resounding string of successes...

[click on chart to enlarge]

Since its IPO, the shares have enjoyed a nice climb. Oh sure, there was an ~8 month intermediate term base (area 1), but please note that each major low in that base was higher than the one prior, as too were the highs! The shares then broke out from that intermediate term base in early-October, ran higher, and then formed a short term base (area #2). Note the low of the short term base merely nudges the high trade of the intermediate term base. Very bullish price action, as it shows signs of unstinting demand! The shares broke out this week above this base as well, with explosive volume and a breakaway gap (area 3). Barring mishaps in the general market, the shares should now proceed higher in a new up trend, accelerated in pace from the one extant (that is, the one since its IPO).

Even though the shares now trade at all time highs, there is minor price resistance at ~$51.50 (the reason the shares turned down yesterday from this level), and then again at ~$55 (and rising). This pattern and setup counts to the low-$80s, once through the levels of minor resistance. I have long held an intermediate term target of $100/share, due one part to the company's increasingly positive fundamentals, a second part to the building pattern now being realized, and a third and equal part to the recognition that Under Armour/UARM fits exceedingly well the mold of a buyout candidate; Nike/NKE is the company most often mooted. Form fitting, indeed!

Does this opportunity yet strike your fancy? Measured against the risk of a possible albeit unlikely decline to the low 40s (~$10 of risk), a further rise of $30-50/share seems especially grand. Yes, reward:risk ratios of 3:1 or better 5:1 fit well my mold of an excellent investment.

What say you (now)?
-- David M Gordon/ The Deipnosophist


05 December 2006

Jerome Murat

jerome murat

Thank you to reader, Tom Burger, for sharing the link to the extraordinary talent of Jerome Murat. Tom introduces this short film by saying,
"Lengthy, but I found it fascinating. What is he: Mime, puppeteer, magician -- all of the above?"

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


04 December 2006


The shares of Nucor/NUE enjoy a breakout from the afore-mentioned (short-term; ~6 weeks) base atop an (intermediate term) base.

A very powerful breakout; a very powerful pattern.
-- David M Gordon / The Deipnosophist


Isis Pharmaceuticals/ISIS

And suddenly the playing field changes.

The news that Pfizer/PFE will halt immediately further clinical trials of its new Lipitor-combo drug, Torceptrapib, ushers in with it a sudden change of dynamics. It becomes very likely that Pfizer/PFE will attempt to strengthen its stranglehold on the statin market by purchasing another company rather than continue its attempt to grow 'organically' the new drug.

An earlier recommendation, Isis Pharmaceuticals/ISIS, is quite likely a (perhaps even, the) beneficiary of Pfizer's sudden largesse.

[click on image to enlarge]

"Isis Pharmaceuticals is a biopharmaceutical company exploiting ribonucleic acid (RNA)-based drug discovery technologies to identify and commercialize novel drugs to treat diseases. The Company, with its primary technology, antisense, creates inhibitors, called oligonucleotides, designed to hybridize, with a high-degree of specificity to their RNA target and modulate the production of specific proteins associated with disease. In its Ibis division, Isis Pharmaceuticals, Inc. has developed a system, called triangulation identification for genetic evaluation of risks (TIGER) that can, with a single test, simultaneously identify from a sample a range of infectious organisms without needing to know beforehand what might be present in the sample."

I included some rationale for owning ISIS shares in the Entelechy post, and mentioned then that $10 represents an optimal purchase point for this stock; recent action had affirmed that notion and today's gap higher on the opening reifies it. (See arrows on chart above.) I remain convinced these shares will soon trade higher, much higher. Certainly, Wall Street begins to take notice. In pre-open trading, Pfizer/PFE shares are bid down ~15% whereas ISIS shares are bid higher by ~10%. And the chart tilts toward the right side of the chart -- the appropriate side, the upside.

-- David M Gordon / The Deipnosophist


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