 |
 |
Short-Term
Bottom, But Recessionary Backdrop? |
|
Round
and round the market goes, and where she stops, nobody knows. Anybody
else feel like that? The last few days have been like the prior forty days...lots
of volatility - most of it bearish. Though I've seen several pieces of
evidence that a bottom was made, I've yet to actually see the bottom.
So, it's with a little reluctance that I'm adding another layer of evidence
today. Nonetheless...
We'll
look at the idea in detail below, as well as some recession data. First
though, a quick note about strangely-undervalued Titan Global.
|
|
Temporary
Ticker Switch For Titan |
|
We've
gotten a few questions about this, but odds are more of you were wondering.
So...
 If
you can't find any quotes or information for Titan Global by using
the ticker 'TTGL',
it's because those shares are currently trading under the symbol 'TTGLE'.
It's a temporary ticker change.
What's
the extra 'E' mean? It's something the exchanges do to let you know
there's either a filing or piece of information that is late, or incomplete.
In
Titan's
case, they were supposed to file Q1 results (for fiscal 2008) a couple
of days ago. They haven't yet, so the exchange notifies the market by using
the ticker change.
While
it's not the hottest of moves in terms of credibility, it's also not
that big of a big deal. It happens more often than you might think,
and often for very legitimate reasons. We're not particularly concerned
about the late filings...not nearly as concerned as we are about the plummeting
stock.
All
that being said, the company still announced what they'd be reporting once
they got their official filings submitted. They'll report record revenues
of $122 million for the first quarter ending November 30, 2007, representing
a $92 million or 307% increase from the Company's $30 million in revenues
for the same period the previous year. Not too shabby.
So
what's so strange about Titan's valuation? Simply annualizing last
quarter's results (which actually understates what they're likely to achieve
this year), I come up with annual sales of $488 million. The current market
cap is only $54 million. Just crazy.
|
|
Zoom
Out For A Clear View |
|
You
know, sometimes we get so bogged down by the day to day stuff - and
responding to it - it's easy to forget the bigger picture. I think
the last several days are an augmented example of the idea. The media kept
dropping bomb after bomb on investors, and most of us were busy trying
to figure out when it would end. Very few were taking a step back to take
a look at what was really going on.
With
that in mind, I'm glad I took some time a couple of days ago to glance
at the market's monthly (yes, monthly) charts. It was a real eye-opener.
We've
looks at Fibonacci lines before. For anybody new to them though, here's
the Q&D lesson. Fibonacci theorists assume there are naturally recurring
patterns in nature, science, and yes, even stock charts. In terms
of stocks, the key patterns to watch for (expect?) are 38.2% and
61.8% retracements of prior trends, whether they be from highs to lows,
or lows to highs. Or, Fibonacci lines also suggest extensions beyond
major
highs and lows, again by 38.2%, 61.8%, or some multiple thereof.
Does
every high or low point on a chart have significance relative to Fibonacci
lines? No. However, way too many of the major ones fall within
this framework to just ignore the idea.
 Take
a look at the nearby monthly chart of the NASDAQ Composite.
Going
back from October's peak of 2861 to the October 2002 low of 1108, you have
a 1753 point span. Now take a look at the 659 point dip (from peak to trough)
we've been through over the last three months. It was almost a perfect
38.2% retracement of the 1753 point run.
Can
you chalk it up to coincidence? Sure, you can make all kinds of assumptions.
And truth be told, the recent pullback wasn't exactly a 38.2% retracement.
However, a 37.6% retracement is pretty darn close, and really makes me
think the market has some sort of psychological threshold that's not likely
to be crossed. (On the other hand, I want to come back to that missing
0.6% below.)
 Now,
had it just been the monthly chart's Fibonacci lines that got my
attention, I may not even have brought it up. But, take a look at the nearby
weekly chart.
Between
the August 2004 low of 1750 and this past October's peak of 2861, we've
come quite close to a full 61.8% retracement of that move. There's technically
still 30 points between the recent low and that Fib line, which brings
up a key point...
As
tempting as it would be look at the chart and say 'yep, that was the
bottom', at this point we may actually need to sink a hair under those
major Fibonacci lines to really flush everything and everyone out.
We've had some mini capitulations, but I'm not convinced we've had
an all-out blowout. We may need to see the NASDAQ plunge under 2172 to
totally
wipe the slate clean.
My
rationale for thinking the worst might not be over? The market has
closed 18 straight days under its 10 day moving average line...an extremely
rare occurrence. Though overdue for a rebound (even if only a dead-cat
bounce), Friday's attempt to finally get back above the 10 day line was
met with extreme prejudice...and no indecision.
In
all fairness though, I'm not totally sold on that possibility that we have
more Fibonacci retracement ground - somewhere around 0.6% worth
- to give up. We may have already suffered a sufficient amount of pain
to make a bottom. Only the next few days will really tell. I think
the 10 day lines, and the 20 day lines, will be the key.
Anyway,
if you want to see the Fibonacci lines for the other major indices (though
they tell the same basic story), click
here for the Dow's, click
here for the S&P 500's, and click
here for the Russell 2000's. We plotted the long-term Fib lines as
well as the not-quite-as-long-term Fibonacci lines on each chart.
And
yes,
we'll be monitoring these charts in the blog as well as upcoming newsletters.
I know
in the last newsletter I said I'd be discussing some recession-proof sectors
in the next edition. After watching the rest of the week unfold though,
I thought today's discussion was more pressing. I still plan on
getting those ideas out to you very soon.
Between
then and now, however, I've also decided something else. Don't
freak out because it's not actually something to fear,
but I think we're already in a recession. No, nobody has said so yet, which
means I'm really sticking my neck out here. However, I'm only basing
my opinion on facts.
 The
facts are (1) unemployment is trending higher, (2) inflation is trending
higher, (3) the Fed Funds rate is trending lower (meaning the Fed is desperate),
and (4) capacity utilization is trending lower. All four of those are symptoms
we've seen occur simultaneously during past recessions. And, all four trends
have been place for a few months.
So
why doesn't the National Bureau of Economic Research (the folks charged
with determining whether or not we're actually in a recession) agree?
Bless their hearts, but they generally don't announce we're in a recession
until we're several months into it. Some help, huh?
Here's
the 'more stupider' part - they also don't announce a recession
is over until it's been over for months. Again, thanks for the early warning.
The
reason a technical recession doesn't really bother me as an investor? There
are actually two reasons. The first is, it doesn't inherently
mean all stocks are going to lose ground (some stocks actually thrive
in the environment). The second reason is, stocks almost always hit a major
bottom in the middle of a recession, and start to recover
well
before it's technically over.
I hope
you're thinking what I'm thinking...any recession-based pullback is actually
a
long-term buying opportunity. Sure it changes the short-term game,
but the Fed - though habitually late to get started - generally
keeps the lull to a minimum.
Anyway,
look for the recession/sector edition soon.
Does
this also mean we're looking for a bear market? Not necessarily, but
we'll have that discussion at another time.
By
the way, it looks like we may have a new small cap company to start covering
next week or the following week. No details just yet, but I think you're
gonna' like the diversity this name could bring to your portfolio.
| |
|
|
| |
 |
Got comments, questions or suggestions?
Send 'em on over: Email
the Editor
If you wish to send a written request
or inquiry, please send it to our physical address:
TGR Group, LLC
4653 Carmel Mtn Rd Suite 308 #402
San Diego, CA 92130 |
|
|
