E-mailed encouragement

I received the following e-mail from Leo of The Weekend Trader. E-mail’s like this are like Powerade for athlete’s. Keep it coming.

“Hi Andy,

I was introduced to your site by Jack of “freestyle day trader”. I’m impressed with your trading style combining the best of Elliot wave analysis, fundamental and your very own greed matrix. You’ve created something that other investors will effectively learn from. Kudos man!”

You bet Leo. I’m no expert, but my RawGreed system seems to work for me. I’m here to try and spread a little anti-greed message to investing. We can all become better investors by not following the herd.

Check out Leo’s blog. If you like what you read on RawGreed.com all I ask that you do is write a post on a message board, e-mail your friends or call everyone in your contact book and tell them to visit RawGreed.com. Ok I feel for your phone bill so forget the calls. A post or e-mail would be nice. The increase in traffic really keeps me enthusiastic about writing.

Purchasing Yahoo!

Today I purchased 500 shares of YHOO, Yahoo! Inc. at 33.97. Yahoo! provides Internet services to users and businesses through the Yahoo! Network; and a range of tools and marketing solutions for businesses in the Unites States and internationally. It offers an array of communications services, including mail, messenger, calendar, chat, greetings, clubs, and photos; and various commerce services, such as shopping, auctions, finance, and travel; as well as content and media programming services in various areas, including sports, music, movies, news, and games through partnerships with various content providers.

It appears to me that Yahoo! is moving away from the role of a content aggregator into the role of a producer. For instance, according to this press release, Yahoo! has decided to revamp its finance page by introducing editorial columns written by some of the nations leading experts. Yahoo must diversify as it takes on heavy competition in the aggregation and advertising space from such giants as Google. Yahoo has also taken other attempts to diversify this year, the company purchased a 40% stake in alibaba.com a fast growing e-commerce start-up based in China. Alibaba.com is one of the few Chinese companies I am enthusiastic about. It has a strong brand name inside and outside of China and most importantly the company is profitable. Yahoo! also handed over promotion of its Yahoo! brand name in China to Alibaba.com. That move alone is one of the smartest decisions I have seen involving an American company dealing with China. Instead of going into China alone, Yahoo! decided to relinquish control of promoting its brand name to an established start-up with local and national governmental ties. For the short term it appears as if traders will embrace the new direction that Yahoo is taking. I read this article that mirrors my sentiments about Yahoo’s current stock price. I’m not so sure how the strategy will pan out in the long term, but in the short-mid term I believe it’s a solid approach.

Symbol: YHOO, Yahoo! Inc.
Intelligent Investor Strength: 7
Chart Strength: 7
Speculation and Greed Strength: 8

RawGreed Strength Rating: 7.5

Target Buy Price: under $34
Target Sell price: $36 within 1-3 months, $38 within 3-6 months.

The shortest distance and chip fabrication

Take a piece of paper and draw two points on it, Point A and Point B. Now try to find the shortest distance between the two points. It’s a straight line right? Well not exactly. I’ll show you another way to find an even shorter distance between the two points. Fold the paper in between the two points. Now that the two points are almost on top of each other the shortest distance is still a line, but a line that moves along the Z or depth plane instead of just the X and Y planes of a flat surface.

Tradition chip fabrication has always been thought of on the X and Y planes of a flat surface. These days it’s getting harder and harder to minimize the paths a chip needs to communicate. New techniques, beyond new process techniques in minimization, will be required to increase the processing power of today’s CPU’s.

Above, you see a cross section of an AMD Athlon X2 CPU. What you can see in the picture are the two CPU cores sitting next to each other and the parts of each core. What you can’t see without proper magnification are all the tiny paths necessary to allow the cores and the parts of each core to communicate with each other. Since Moore’s Law was first introduced, the primary method of increasing the speeds of a CPU have revolved around shrinking the parts and distances between the parts to communicate. Imagine now, that instead of designing CPU’s on a flat surface, you placed the cores of a dual CPU or the parts of a single CPU on top of each other. Doing this, you would massively decrease the distance between the points on a chip that are required to communicate. This technique is known as stacked chip design. At the moment, there are only a handful of companies that have the required expertise and tools to create stacked chip designs.

Stacked chip designs require special software tools to design on the Z plane and tools to calculate heat dissipation. Heat will be a major problem to tackle with parts sitting on top of each other instead of adjacent to each other. If stacked chip design takes hold, an entire industry will form around the process. At the moment stacked chip design and multicore CPU’s are the leading candidates in advancing Moore’s Law. I predict that nanotechnology developments will ultimately advance chip design and performance, but not cost effectively for at least another decade. At the moment I see more novel and simplistic approaches, like stacked chip design, in speeding up chip communications. Early investors will look for opportunities with profitable companies that provide design tools, process technologies or equipment to the semiconductor industry.

I would keep my eyes on AMD, INTC, AMAT, SLR, SWKS, IBM, TXN, UMC and TSM as the major players that would take advantage of stacked chip design.

Lunchtime request line is open

I take requests. No songs though.

E-mail me your stock picks and I will report back with an analysis if I know anything about them. Thanks for all the e-mails. I’ll try to get to all the stocks I know about by this weekend.

Just a little more

CAL’s at 9.07. My target buy price is under $9. Just a little bit more.

Edit: Well too late now, hopefully it will drop to my price target in late afternoon trading.

Gold to 500?

I hear people who wouldn’t normally discuss investments or stocks chatting about gold. To me, that’s the first sign that something is wrong. What do I think about gold? I think it will keep rising. Do I think gold will break 500? Absolutely, I use a great website called kitco.com to track the daily price in gold. To paraphrase an article I read, I believe the question of gold hitting 500 is not if, but when it will break 500. There’s no question that gold is amidst a bull run at the moment and the metal is at an 18 year high.

Every bull run typically goes through 3 phases. The first is when value investors come into the mix and start to define the investment opportunity. The second phase happens when technical and institutional investors come into play. The third phase happens when the regular investor takes notice of the institutional activity and tries to capitalize on the momentum. During the third phase, fundamentals and logic gets thrown out the door and is replaced by speculation and greed. All analysts are in complete consensus that whatever it is will continue to go up. You hear normally investment adverse people talking about the opportunity. These are all signs that something is wrong. It means that greed has come into play.

I believe that gold is in its third phase of a bull run and that it will top 500 sometime in 2006. When this happens I would look at shorting stocks of gold companies. A few on my watch list are BGO, IAG and GG.

*Disclaimer: I bought BGO early this year at $2.25 and again when it hit $1.94. I sold BGO at $2.43 on August 3rd. I think that BGO is headed to $3.50. I would look at shorting BGO if that happens without any forward looking news or catalyst to cause the price to go up.

Flying with the Airline Industry

It’s amazing how fast stocks of airlines move in conjunction with any news about oil. Speculation over the rising prices in jet fuel has sent the stocks of major airlines in a dizzying spin downwards. Continued high prices in oil put undue economic pressure on the country. Airlines serve a critical function in the global transportation network and without the major carriers in operation, global business would be severely impacted. Post 9/11, Congress has given the airline industry billions of dollars in monetary assistance, abatements and concessions. To pick the winners in an unusually volatile industry, sometimes means you have to pick companies that have shown relatively even or slightly positive performance. This isn’t a great state of affairs overall, but we are looking for stability as the industry climbs out of a stump. You may not make the most money following this strategy, but I believe it’s safer than gambling on DAL, Delta Air Lines Inc. or NWACQ.PK, Northwest Airlines Corp., both of whom have announced recent bankruptcies.

Part of being a successful investor is also being a successful business person. Technical and momentum traders will always, I believe, make more money in the short run than investors looking for solid businesses. I believe long term value investors like Warren Buffett will always outperform purely technical or momentum traders, because they are not only investors, they have solid business principals that guide them, along with the ability to see the numbers. I believe this is also what RawGreed is about. I try to identify situations where greed and speculation has created an opportunity to purchase a stock with a reasonably solid foundation. I’ve watched greed overtake all logic and reasonability. A RawGreed recommendation is one that goes against the tide of greed.

After writing my price targets for CAL and AMR I came across an interesting Marketwatch article that seems to mirror my thoughts on the two airlines. For now airlines like United, Delta and Northwest are giving the industry a bad reputation and dragging down the prices of other airline stocks. I believe most analysts have reached a consensus to avoid the airline industry. If you are reading this, you already know that I don’t trust what the majority of analysts have to say. By the time most analysts are in consensus on buying airline stocks, the opportunity to buy them will be over. I look at airlines as a critical part of our global transportation network. I believe airlines won’t go away anytime soon, regardless of the doom and gloom picture that so many individuals are painting.

AMR Corporation

Symbol: AMR, AMR Corporation (American Airlines)
Intelligent Investor Strength: 7
Chart Strength: 7
Speculation and Greed Strength: 10

RawGreed Strength Rating: 8.5

Target Buy Price: under $10
Target Sell price: $13-$14 within 3-6 months, $15-16 within 6 months-1 year.

Notes: AMR is the world largest Airline and has positive cash flow. Next to AMR, I would look at purchasing CAL, JBLU and LUV.

Continental Airlines, Inc.

Symbol: CAL, Continental Airlines, Inc.

Intelligent Investor Strength: 6
Chart Strength: 7
Speculation and Greed Strength: 10

RawGreed Strength Rating: 8.25

Target Buy Price: under $9
Target Sell price: $11-$12 within 3-6 months, $14-15 within 6 months-1 year.

Notes: CAL is heavily influenced by speculation and greed. Every little piece of news about oil has sent the stock tumbling or rising.

*Disclaimer: I own 2000 shares of CAL purchased at $9.55

Covering SIRI

I shorted 2000 shares of SIRI at $7.31 on September 13th. I covered 2000 shares of SIRI at $6.53 today.

My profit was $1548.39 or 11.86%.

I still see SIRI headed down to at least low 6’s before a recovery takes place. I covered my short position in SIRI in order to lock in gains to fund my purchase of additional CAL shares. I’m hoping CAL will drop to my price target of under $9 this week. CAL reached as low as 9.12 today.

Baidu.com Inc. RawGreed Award winner of the day

BIDU, Baidu.com, Inc. operates as a Chinese language Internet search provider. The company offers Internet search solutions and online marketing solutions. This is a company with almost no earnings and trading purely on the speculative potential of the Chinese market. This is a rare occasion where the price of the stock is almost entirely based on speculation and greed. This is how analysts like Mary Meeker justify their bullish China reports.

Stock Symbol: BIDU, Baidu.com, Inc.

Intelligent Investor Strength: N/A
Chart Strength: N/A
Speculation and Greed Strength: 9

RawGreed Strength Rating: 9

Target Short Price: Over $80
Target Cover Price: $40 within 6-12 months

*Disclaimer, I shorted 200 shares of BIDU at $82.50.

Apple Computer Inc. Predictions

I’ll go out on a limb by making some predictions about AAPL, Apple Computer Inc. I believe the bulls are out in full force and have driven up the price of stock beyond a reasonable price. I don’t think its about to end anytime soon. Apple will surely enjoy success with its Nano iPod, the replacement for the mini iPod. Apple is also enjoying a healthy margain for sales of the Nano iPod. In a recent business week article, it was estimated that the cost of an iPod Nano, including assembly, was $98.18. This gives AAPL an over 50% margin before its marketing and distribution costs.

My speculation over Apple, is that the company is a one hit wonder. Apple has a diverse product portfolio, but none of Apple’s products have contributed to the increase in its stock price as much as the iPod. Even the iMac or the Mini Mac, great products in their own right, have failed to deliver even a 1/2 of iPod’s sales. What happens when interest in portable music players wanes or sales of the iPod start to taper? Long term holders of the stock have to have faith in Steve Jobs to produce another wonder for the company on an iPod scale. How many companies have successfully released two hardware products that represent entire platforms back to back? Statistically I’m sure the number is small. The bulls will argue that Apple is a different company, flush with innovation and design talent. What the bulls forget though is that Apple has always been a great industrial design company that released lots of innovative products. Anyone remember the Apple Newton? The Newton, like the iPod, was Apple’s entry into creating a PDA platform for themselves. What happens if Steve Job’s introduces another Newton for Apple? The bulls are forgetting that Apple launched many products before launching the iPod.

The entire consumer electronics industry is moving toward the next big thing, most likely some type of pervasive video device judging by the investment in various low voltage display technologies, such as OLED - Organic Light Emitting Diode Displays. If success was assured by launching a hardware platform or even a distribution platform, today we would have seen companies like Sony leading the way in portable hard disk or flash based audio players. Sony certainly dominated the Walkman, Sony’s trademark for portable cassette players, days.

Apple reminds me of another company during the portable cassette player days, Aiwa. Aiwa was hugely successful with their portable cassette players. They attempted to branch out but failed to do so. If Apple turns into another Aiwa long term holders of the stock will be in a bad situation. Apple can only sell so many iPod’s before mass saturation and price cuts occur. Even Apple’s distribution platform iTunes isn’t invulnerable to replacement since it is so closely tied to the iPod. What happens if the distribution method becomes wireless, i.e. a high speed wireless data network that can download directly to a device with integrated storage? This type of product was release by Sony this year and enjoying success in Asia. If iTunes loses its exclusivity and opens up to all portable music devices, the company will have lost a distinct competitive advantage. Right now I believe Apple wants full control and will only license to hardware vendors like Motorola who must choose to pay to have an iTunes branded product.

Point blank though, the company is becoming too reliant on the iPod. The bulls will drive the price of the stock up further due to greed.

My end of year price target for AAPL is $70
My predicted all time high for AAPL is $80
My predicted long term price for AAPL is $25-30 in 2-3 years

A turbulent day

Today we saw some see-saw action in the markets. Up and down all over the place seemed to be the theme. The speculators are out in full force. One stock I am especially enthusiastic about is CAL, Continental Airlines.

I once bought CAL at $8.70 and sold at $14.10 in the span of four months. CAL is just filled with speculation and greedy short sellers. I would award all the short sellers RawGreed Silver Awards if I knew who they all were. CAL’s price seems especially vulnerable to the price of oil and the aftermath of Katrina and Rita.

Of course, these situations are only temporary and create buying opportunities for people like me. Last week I bought 2000 shares of CAL at $9.55, if the price drops below $9 tomorrow I will buy another 1000 shares.