A new year begins and 2011 is old news, regardless if it was good or bad. You must forget about it either way. If you had a bad year, learn from it and make 2012 better. If you had a good year, figure out why it wasn’t better and don’t be overly confident/reckless going into 2012. This will help ensure you have better odds of repeat success. This is the time to wipe the slate clean and focus on the upcoming 2012 performance. This is not about what you did in the past, this is what you can do for me now. Short-term memory, forget the past outside the lessons learned.
For most, 2011 was challenging as the environment continues to change forcing market players to continually adapt. Buy and hold was a waste for most as the markets closed about even on the year. Active traders learned the hard way not to justify bad trades when things are uncertain as they can lose pretty fast and many did. Most everyone learned some important lessons in this ever-changing market of 2011. We can expect 2012 to be the same, especially as more news from Europe hits us, politics heat up and the election draws near.
That being said, we must focus on the day-to-day and week-to-week action. The markets are still holding up well, but Santa Claus took a nap the past few days of the year. The Santa Claus rally is still intact, but lacks enthusiasm and confidence as bonds continue to rise giving no reason to trust equities rising more. Something has to give, neither are expected to rise continuously and I typically follow bonds before equities. If bonds sell-off with some strength, I’ll grow very bullish very fast in equities. For now, I’m holding numerous positions in various sectors, but very small positions that are no bigger than starter positions. I see no reason to be betting aggressively with bonds moving up at the pace they are.
This Friday is the big nonfarm payroll data. You can expect everyone to be focused on that to determine the next level of optimism or skepticism about our economic recovery. Tuesday has the Fed minutes at 2pm (Eastern) which will be focused on by some to determine the feasibility of QE3. I believe QE3 is inevitable, it’s just a matter of when will it be executed this year. The other question is will it be called QE3 or something with less of a negative connotation.
| Date | ET | Release | For | Actual | Briefing.com Forecast | Briefing.com Consensus | Prior | Revised From |
|---|---|---|---|---|---|---|---|---|
| Jan 03 | 10:00 | ISM Index | Dec | 53.2 | 53.4 | 52.7 | ||
| Jan 03 | 10:00 | Construction Spending | Nov | 0.2% | 0.5% | 0.8% | ||
| Jan 03 | 14:00 | FOMC Minutes | 12/13 | |||||
| Jan 04 | 07:00 | MBA Mortgage Index | 12/31 | NA | NA | -2.6% | ||
| Jan 04 | 10:00 | Factory Orders | Nov | 2.6% | 2.1% | -0.4% | ||
| Jan 04 | 14:00 | Auto Sales | Dec | NA | NA | 4.36M | ||
| Jan 04 | 14:00 | Truck Sales | Dec | NA | NA | 5.98M | ||
| Jan 05 | 07:30 | Challenger Job Cuts | Dec | NA | NA | -12.8% | ||
| Jan 05 | 08:15 | ADP Employment Change | Dec | 200K | 180K | 206K | ||
| Jan 05 | 08:30 | Initial Claims | 12/31 | 375K | 375K | 381K | ||
| Jan 05 | 08:30 | Continuing Claims | 12/24 | 3650K | 3620K | 3601K | ||
| Jan 05 | 10:00 | ISM Services | Dec | 53.0 | 53.0 | 52.0 | ||
| Jan 05 | 11:00 | Crude Inventories | 12/31 | NA | NA | 3.899M | ||
| Jan 06 | 08:30 | Nonfarm Payrolls | Dec | 165K | 150K | 120K | ||
| Jan 06 | 08:30 | Nonfarm Private Payrolls | Dec | 200K | 170K | 140K | ||
| Jan 06 | 08:30 | Unemployment Rate | Dec | 8.7% | 8.7% | 8.6% | ||
| Jan 06 | 08:30 | Hourly Earnings | Dec | 0.1% | 0.2% | -0.1% | ||
| Jan 06 | 08:30 | Average Workweek | Dec | 34.3 | 34.3 | 34.3 |
GAME-PLAN
My game-plan is the same as previous weeks and as discussed in the introduction. I am preaching patience and selective stock picking. My strategy has me focusing mostly on the energy, biotechnology and technology sectors. January 10th is the International CES event that is widely focused on, so we could see technology stocks acting better during that time. Rumors will come from the event, bullish news will come from select companies, and technology stocks could see some sector rotation towards it. I’ll be focusing some additional time monitoring for any bullish activity in that sector that we can profit from.
I’m staying positioned with no bigger than starter positions until the action warrants more aggressiveness. I have no desire to play the short-side at this time, I am focused entirely on long trades, but keeping risk minimal for now. If bonds start to sell-off with some real movement, I’ll look to start adding to my positions near support levels to bet more aggressively in equities.
Currently, I have positions in Caribou Coffee (CBOU), Glu Mobile (GLUU), Oncothyreon (ONTY), Cheniere Energy (LNG), Applied Micro Circuits (AMCC), Dejour Energy (DEJ), Gastar Exploration (GST), Magnum Hunter Resources (MHR), Northern Oil and Gas (NOG).
You can follow my trades here for free.
STOCK RADAR
I am sticking to stocks showing relative strength over the past weeks. I look for them to pullback towards support levels where I start to buy incrementally. I have not bought a stock on a breakout in a while and have no plans on it unless I’m in a very aggressive mode, which has not been for a long time. Market players have been reluctant to buy stocks on breakouts over the past year and I have adjusted my strategy to be more selective and patient.
This week, I have added a short squeeze radar along with my original weekly radar. The short squeeze radar is compiled of stocks showing relative strength, but having high short interest (you will notice duplicates among the radars). So, any bullish spark may set them off in a short squeeze run netting significant profits if you trade it correctly. Always trade these careful though as stocks with high short interest will have negative rumors swirling around them trying to shakeout investors who have not done their homework. However, some of those rumors may indeed be true, hence the importance of doing homework and being very selective. The risk is higher for these types, so make sure you know what you are getting into before you buy, not after you buy.
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TGC Industries (TGE)
Volterra Semiconductor (VLTR)
ViroPharma (VPHM)
Web.com Group (WWWW)
Atlas Energy (ATLS)
Conns (CONN)
CryoLife (CRY)
Convergys (CVG)
Ebix (EBIX)
Entegris (ENTG)
Bottomline Technologies (EPAY)
Flow International (FLOW)
FSI International (FSII)
Flotek Industries (FTK)
GeoResources (GEOI)
International Game Technology (IGT)
iGATE (IGTE)
Integrated Silicon Solution (ISSI)
ISTA Pharma (ISTA)
Jaguar Mining (JAG)
Key Energy Services (KEG)
Kodiak Oil (KOG)
LeapFrog Enterprises (LF)
Legacy Reserves (LGCY)
Mentor Graphics (MENT)
Momenta Pharma (MNTA)
Nanometrics (NANO)
Maxim Integrated Products (MXIM)
Northern Oil and Gas (NOG)
Newpark Resources (NR)
Nuance Communications (NUAN)
Prestige Brands (PBH)
Parker Drilling (PKD)
Perficient (PRFT)
Provident Energy (PVX)
Rudolph Technologies (RTEC)
Scientific Games (SGMS)
Semtech (SMTC)
Santarus (SNTS)
Spectrum Pharma (SPPI)
Synergetics USA (SURG)
Smith & Wesson (SWHC)
Short Squeeze Radar
The Cheesecake Factory (CAKE)
Conns (CONN)
Cost Plus (CPWM)
Ebix (EBIX)
Fushi Copperweld (FSIN)
Flotek Industries (FTK)
GeoResources (GEOI)
Jaguar Mining (JAG)
Northern Oil and Gas (NOG)
Pacer International (PACR)
Sonic Automotive (SAH)
Approach Resources (AREX)
Oncothyreon (ONTY)
Royale Energy (ROYL)
Transcept Pharma (TSPT)
Boyd Gaming (BYD)
Superior Energy Services (SPN)
You can follow my trades alongside the 36,000 plus market players who follow me on SeekingAlpha (Shameless promotion). As always, do your own homework to see if you agree. Good luck out there.
Mike
At the time of publication, Kudrna was long LNG, CBOU, DEJ, MHR, GST, AMCC, ONTY, NOG and GLUU, but positions may change at any time.
