Happy Wednesday everybody. First and foremost, holy cow was Wednesday a nasty day!
Believe it or not, it wasn't the worst day stocks have seen this year. It was one of the worst, but not the worst. Still, this setback did some damage that suggests things have officially taken a turn for the worst.
For the first time since late-February, the S&P 500 has closed under the 20-day moving average line. It matters, because the last two times the S&P 500 closed under its 20-day average line after bumping into its upper Bollinger band, it went on to touch its lower Bollinger band. That was in late December, and again in late February. Here's a bigger picture look at the S&P 500 for the last four months; you can see just how hard we got hit today.
Instead, today I'd really like to zoom in on an index we haven't looked at much of late... the NASDAQ Composite.
Just so there's no misunderstanding, like the S&P 500, the NASDAQ also moved under its key 20-day moving average line today. Unlike the S&P 500 though, the NASDAQ Composite moved all the way to its lower Bollinger band in the process.
The last two times that lower band line was hit, it sparked a rebound (just like the S&P 500's). Will this encounter with the lower Bollinger band line make it a three-peat? Great question.
We mentioned to you yesterday that the market was at an inflection point. Well, it's at an inflection point today too, but for a different reason. Yesterday we were saying it was time for the bulls to put up or shut up, meaning they needed to break through - decidedly - to new highs once and for all, or throw in the towel. Today, we're going to tell the bears if they're serious about doling out a major correction, they're going to have to take the NASDAQ under that lower band line at 3217... soon. The sellers couldn't get the job done in late February, but this is a brand-new ball game, and the market is right at the tipping point.
Our bias is (still) a bearish one, if only because the market's 15% runup since November left it overbought as a result. But, we're not going to fight the tape. We just need to figure out what the tape's saying after today, which should become clear by the end of the week.
Stick around... this is going to be fun no matter what.
CALL Dials Up a Monster-Sized Quarter
For those of you who were reading the newsletter around the middle of last year, the name magicJack VocalTec (CALL) should ring a bell. It was one of the site's Featured Stocks around that time, and for the folks who actually traded our suggestion, you should have made some good money with it.
Even if you don't think you know the company, you probably do - you just need a memory-jogger. magicJack VocalTec is the company selling the little device that can turn any broadband connection into a phone line. The company's been pitching the device on TV for a while, and it's actually made its way into the upper crust of the most popular 'As Seen on TV' products.
Anyway, the product and the stock both hit a critical mass of buzz in the middle of last year. Here's the thing about those hype-based trades though.... their faddish nature means you have to be willing to get in and out in a fairly short timeframe. There's nothing wrong with that - it's just part of the game. That's why the SCN didn't linger with CALL as a Featured Stock back in mid-2012; we made our money and moved on.
Here's the thing - the merits of the underlying idea never really went away. It's a good product, and the company's selling magicJacks by the thousands every quarter (and sales are growing too). The trick for investors is just finding the right entry spot.
The folks at the SmallCap Network Elite Opportunity found that spot. In fact, they nailed it.
While I generally don't like to divulge the SCN EO's open positions, I don't think they'll care too much now, because the initial gains they were looking for from CALL were doled out today. Following magicJack VocalTec's earnings announcement last night, the stock was up more than 13% at one point on Wednesday. As it turns out, the company swung back to a profit in Q4 on the heels of a whopping 88% increase in revenue. The Q4 per-share earnings of $0.91 trounced the year-ago figure of a $0.26 per-share loss. Sales for the full year were up 56%, leading the company to a full-year profit of $2.73 per share.
Now, the results are nothing less than amazing. What I find even more amazing, however, is that the good news caught so many people off-guard despite the fact that the stock was bulletproof for a short while in the middle of last year.
It begs one, well, two questions: (1) What happened in the last part of last year that deflated CALL shares in the first place? (2) How did the SmallCap Network Elite Opportunity see what so few others saw coming?
The answer to the first question is something I've said many, many times - perception and relativeness (I know, 'relativeness' isn't a real word) are just as important as earnings and valuations when it comes to stock-picking. Anybody who's trading under the assumption that the stock market makes superficial, value-driven sense is setting themselves up for disappointment. Late-last year's buzz felt less special than the buzz in the middle of the year, and shares slumped as a result.
The answer to the second question is also something I've said many times - the guys at the SCN EO flat out understand how the market really works, and they can put that knowledge into practice by buying into stocks that are ready to pop. As proof of the pudding, they just dished out a double-digit gain to their subscribers in a day. Not too shabby.
I don't know what the SCN EO's next move with magicJack VocalTec is going to be, but if you want to buy it, feel free to do so. And personally, I think there's more upside ahead if the stock can just settle down and regroup. Just know it's entirely possible the SCN EO's subscribers could be selling the stock to lock in their gains while you're buying in.
Or, you could just do the easy thing and become a subscriber; a decent-sized position in their CALL trade could have more than paid for your subscription. For the time being you can even get a free two-week trial.
Or, you can miss their next big winner.... it's your 'CALL' (pun entirely intended). Go here to get the whole scoop. Or, copy and paste the following link in your browser: http://www.smallcapnetwork.com/?vmpd_ckstr[click_track]=SCN+Newsletter&vmpd_ckstr_redirect=/pages/SCNEO/v1/
Time to Separate the Men From the Boys, Part 2
In yesterday's newsletter we told you it was looking like Q2's earnings expectations were a little too optimistic, and that was setting up problems for the market. We specifically took issue with S&P's research chief Sam Stovall's mostly-bullish assessment, who felt the market was about 15% undervalued based on its P/E ratios. But, it wasn't like we felt every stock out there was destined to hit a wall. Picking up where we left off then...
While Stovall may be a little too enthusiastic about the market for our tastes, he did make one point we whole-heartedly agree with - it's emerging markets that are going to lead the way to any global economic growth this year. He's saying emerging markets are on pace to grow by 5% in 2013.
The good news is, about 50% of the S&P 500's revenue is driven by overseas customers. The bad news is, that 50% isn't allocated equally among those 500 stocks. Some do practically no international business, while others do almost nothing but international business. If you're feeling confident holding a stock that relies almost entirely on U.S. customers, just bear in mind this nation's GDP growth rate was a mere 0.4% in Q4.
That being said, while some American-based multinational companies are poised to do well in 2013, the easier move may simply be to invest in more overseas companies than you normally would.
More than that though, we suggest getting real specific with your foreign stock picks. Rather than an emerging markets fund or ETF, we suggest traders seek out the areas that are distinctly poised for stronger growth than the average emerging market.
Take Panama for instance. Most investors may not be aware of it, but the Panama Canal is being expanded, and Panama is positioning itself as even more of an international trade hub. The country's economy is also expected to grow by more than 8% this year, even before the canal work is done.
At the other end of the spectrum is a country like South Africa, which finds itself at the bottom of the pecking order within its circle of trade partners... mostly the BRIC group. The nation is importing way more than it's exporting, and government debt is swallowing any real growth efforts there. Its infrastructure is also limiting its financial/industrial opportunities, yet it can't get the help it needs to dig its way out of that hole.
If you were invested in a broad emerging market fund, you'd have the upside of all the Panamas, but you'd also be handed the downside of all the South Africas out there... and there are a lot of them. It might take a little more work to separate the winning countries from the losing ones, but at this point, it's worth the work - there aren't going to be too many hot spots this year.
We'll pinpoint some of those better emerging markets as they come to light. That'll have to wait though. We've already gone a little too long today, and we want to give you a chance to check out everything the SmallCap Network Elite Opportunity has to offer while you can still get the free two-week trial.
Talk to you tomorrow.