First off, we've got an exciting new addition to 21st Century Alert that I have to tell you about. This is really cool, and I'm pleased that we have it exclusively on our web site for subscribers.
I'm talking about the new Stock Scorecard from BlueHawk Investment Research (formerly Callard-Bukowski Research). This new valuation tool is based on the methods of Chuck Callard and Paul Bukowski -- two top independent institutional analysts who have consistently beaten the S&P 500 by a ridiculously wide margin over the years.
This Stock Scorecard will give you a quick rundown of the important fundamental variables that affect the long-term prospects for a company and its stock. The Scorecard gives a specific price target, based on what BlueHawk "Cash-Flow-Return-on-Investment" (CFROI) model is predicting for their future.
Last night I happened to punch in the stock of SanDisk (SNDK), the flash memory producer and recent stock juggernaut. I was wondering if the recent epic run was supported by the fundamental valuation techniques employed by BlueHawk.
Not surprisingly, it turns out this run was perhaps too much of a momentum freight train. Let's check it out:
Much to my surprise, many of the scores I looked at were actually undervalued according to BlueHawk's fundamental valuation models. So promise me -- before you buy or short a stock from now on, please run it through our Stock Scorecard, just to get that critical second opinion from a top institutional research boutique.
We're also working on a way to screen based on specific criteria, so you can glean for undervalued and overvalued candidates. I'll let you know when that's ready to go.
S&P 500
The SPX, as expected, got some upside momentum going yesterday, and staged a decent rally back up and over the critical 1000 handle. In the process, it also made it back over the "breakout" line from the previous rally.
Such a retracement is entirely expected if a mid-term downtrend is now going to roll in. The market can't get too many people bearish all at once; it has to happen in rolling waves.
We still look to be building that head-and-shoulders top I discussed last week. This is now the right shoulder forming -- if this scenario is indeed correct -- and a fading right shoulder is the picture perfect place to short the market. So where might that right shoulder flame out?
We're still looking at the "short zone" between SPX 1013 to 1024 as the easy, no-fuss entry spot. If the SPX motors on up and over 1024, we can just get-out-of-dodge on the short, as it's difficult to characterize it as a downtrend when prices move back above the 61.8% retracement of a downleg. That's the point where the chaotic market system has thrown itself back into neutral.
So the game plan is to have patience here, and wait for higher prices to load into bearish Rydex funds. It's not in our model to go long with the VIX down in the low 20s, as there's just too much quick downside risk -- as the recent slide from 1040 has proven.
By the way, the early returns on this short-term advance phase, which got underway today, show a market that is quick to believe the worst is over. On a day when lots of puts were flying out the door, the VIX actually went down. So there was speculative demand for puts, but not necessarily panicky demand. I interpret this to mean that once the short-term bearish bets get worked off in an upside retracement, the downside can once again take over.
A trip down to the 40-week exponential moving average (pink line below) is a routine occurrence, even in the middle of a much bigger uptrend. So that will be the first target to the downside, and if the SPX knifes through there, then batten down the hatches, as the bear will be on the loose again at that point.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Drained 10 points to 21% full of negative sentiment. The SPX rose about 10 points. Not great mileage but not terrible either. At this rate it would be tough to the SPX much up over 1027.
SHORT-TERM: Moved from a decline phase into neutral with a positive bias.
MID-TERM: Progressed 2 points to 68% in its decline phase. However Confidence regressed to 0.
LONG-TERM: Progressed 16 points from last week's closing reading to 36% in its decline phase. Confidence regressed to 0 here as well.
BOTTOM LINE: We are seeing the weak bounce we expected. The mid-term gauge is now poised to either break below 75% on the decline side (bearish) or roll up into a new advance phase without dipping out of the yellow box. On the weekly gauge we have a clear window of opportunity for a more sustained market decline.
Let's see whether the short-term gauge makes good on this effort to move into Sentiment Advance Phase, and if it does, whether Price is able to surge ahead or just limps a bit higher. Whether we get a bona fide hourly advance, and the quality of that advance, will tell us a lot about whether more downside is imminent.
With the 4th week of September now past, Seasonal Weakness is out of the Confidence Diffusion Index for 2-3 weeks. It will return for the latter half of October..
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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