By Jeff Miller :
Technical stock analysts are a rich source of new stock ideas. Those charts always suggesting something. Our trading models each specialize in a different time frame and level of risk. Each week, Felix and Oscar host a poker game. We listen in on current trading ideas in the few minutes beforehand. They like to call this their "Stock Exchange." I am the only human present, and the only one using fundamental analysis.
Their methods are excellent, as you will learn if you follow us for a few weeks. The entire group had a winning call on energy three weeks ago, without any input from the fundamentals.
Do the markets predict future events? Or should you use fundamentals to predict the markets?
That is the ongoing debate at the Stock Exchange.
This Week's Ideas
Our technical experts have varying ideas this week. As usual, I am skeptical, but let us give each of them a chance.
"I look for long-term themes, and I have a great one this week. I see a great chart for Banco Bradesco ( BBD ). The YTD is strong and steady. Brazil is as tumultuous as ever, except this time they might be improving their banking system."
[Jeff] "How do you know about bank reform? Have you been fraternizing with those foreign models again?"
[Felix] "Would you believe it is just a conclusion from the chart?"
[Jeff] "Also, the CEO is under indictment for tax fraud."
[Felix] "The chart tells you that the company and the market have moved past that issue. Take a look."
richjoy403 of Seeking Alpha asks:
I've wrestled myself to a draw regarding my 4.5 year position in RDS.B (i.e., I can make about equally strong bull and bear arguments). I'm asking how your models and yourself view it?
As usual, I answered through Jeff Miller , who could not resist adding his own comment.
RDS.B in the top half of our 700 stock universe. I think there are better energy plays right now. I'll write something more on that when I have finished some research.
Another question from Seeking Alpha's dls680 :
Jeff - Love your work! Since you asked for questions about specific stocks or sectors I'd like to throw a question out to you (and Felix, since you describe him as an investor who thinks long term) about Wells Fargo.WFC is technically breaking down while at the same time the bank sector looks like it might be entering an uptrend. I know you've liked the Bank sector... so what would you say to a long term holder about continuing to hold WFC for the long term?
Jeff Miller and I responded:
Felix does not like WFC at all. We own it as part of our enhanced yield program, which means dividends and writing calls against the position. For long-term investing I prefer regional banks like STI.Thanks for the kind words and for joining in our discussion.
[Felix] "Please keep your questions coming. I could use the overtime pay."
"It's been a tough month for Odell Beckham Jr. In a stark contrast to last year's superstar performance, he's slumped his way through the first 4 weeks of the NFL season without a single touchdown. However, sharp-eyed analysts see Sunday night's matchup against the Green Bay Packers as a chance to get back on track.
What we're really talking about here, of course, is mean reversion. When you have a promising player who is underperforming, you don't expect them to flame out entirely. You're looking for the big comeback game!"
[Jeff] "Do you have some stock advice here?"
[Oscar] "Of course! I was just explaining how you should look at stocks. Take a look at the Guggenheim Solar ETF ( TAN ). It's been a rough year, to be sure, but I can't possibly imagine this sector limping along at $20 indefinitely."
"First Solar ( FSLR ) is one of the key holdings in TAN as well as in our custom sector basket. It is a great example. We're starting to see rebounds here after a possibly overdone correction in early August. I'm expecting to see significant gains over the next 4-week period."
[Jeff] "Your pick this week is also attracting some fundamental analysts, including this one on Seeking Alpha, who calls FSLR a 'unique value and growth play.'"
[Oscar] "What does he think about the Cubs?"
[Jeff] "You are incorrigible! Let's see what Holmes has for us this week."
"Oscar is looking for a rebound in his pick, but I am the rebounding specialist. Air Products and Chemicals ( APD ) came off its recent high of $145.72, and went straight down 7 straight sessions before bottoming and starting a nice little zigzag run up and to the right. That is a stock with rebound potential! I would look for this stock to get back to its highs with a downside stop at $133.75."
[Holmes] "There are plenty of those folks around!"
"I have a great choice this week, Advance Auto Parts ( AAP ). This one's been in the doghouse following an 18% drop last November, but I'm predicting an upside here."
[Jeff] "Even after the drop, the stock is still overvalued by 30% or so, according to Chuck Carnevale's first-rate methods ."
[Athena] "I am sure that Mr. Carnevale is very nice, but my wisdom has been accurate for many centuries."
[Jeff] "It might be a bit out of date. I have been looking for some guests to help keep this group in line. Perhaps we can persuade him to visit."
[Athena] "That would be fine. I am always willing to share my wisdom."
If you want an opinion about a specific stock or sector, even those we did not mention, just ask! Put questions in the comments. Address them to a specific expert if you wish. Each has a specialty. Who is your favorite? (You are allowed to choose me, although my feelings will not be hurt very much if you prefer one of the models.)
Cast of Characters
Felix is fussy, precise, and very cautious. He looks for what is working, but it also must have upside potential. He is an investor who thinks long term. Felix will not usually announce new picks, but he will answer questions, saying what he thinks about specific stocks. He will also comment on favorite themes and sectors.
Oscar is naturally optimistic and a bit excitable. He definitely likes to go with winners and focuses on a one-month time frame. He trades either sector ETFs or a basket of stocks (equally weighted) that reflect a sector. Oscar will mention a favorite sector each week, and will also answer questions about sectors.
Holmes is a trader, but a cautious one. Holmes emphasizes asset protection through profit-taking, stops, and trailing stops. He is careful in selecting new positions, and generally looks at an intermediate time frame. While he does not know the definition of "mean reversion," he loves rebounds! There is no set holding period, but two or three months is not unusual. Holmes will tell us one stock recommended that week. For those who sign up for his email list (no charge, privacy respected, holmes at newarc dot com), he will report exits with a one-day delay.
Athena trades more frequently than the others, but still limits risk. Her inspiration helps to find good ideas. Her excellent quant skills find attractive risk/reward opportunities. Her wisdom leads her to exit trades that are not working. Athena will provide a new idea each week.
Jeff usually has some comments about stock or market fundamentals. Unlike the other witty participants, he sounds like an old prof.
An Important Note to Readers - From Jeff
All of the characters (except me!) are models, carefully engineered and tested by one of the leading developers of the last 30 years. I humanize them to make it easier to understand the characteristics in their design. I always remind readers that my posts are informational, not investment advice, and that is especially true here. While we are trading based upon all four models, we are always watching and can act quickly when necessary. The models are not suitable for all investors. If you like the approach, reach out to us (info at newarc dot com) and we will provide more information.
The conversation is light-hearted, but the stock analysis is serious. We own positions in each of the stocks mentioned.
Finding great stock picks need not be boring. Please enjoy the banter and join in.
See also Opportunity In The 8.6% Yield: Something For Nothing on seekingalpha.com