Fundamentals

The DIA (SPDR Dow Jones Industrial Average ETF), which currently trades a 12 times earnings is historically low for the average. The weak dollar could push earnings higher as most of these companies are growing their international earnings faster than U.S. earnings. This could cause the earning to mislead investors into thinking that earnings are growing when in fact the dollar is just cheaper allowing international companies to boost profits without boosting sales.

Technicals

Looking at the chart above, you can see the current trend is almost identical to the trend that crossed 11,000 in April. The current trend has yet to pull back or have a correction and stochastics trading at 93, the market looks to be overbought. Be aware: stochastics can be oversold or overbought for long periods of time. If you believe the Dow is going higher watch around the 11,200 level. If you believe the Dow is going lower watch the 10,700 level.

Other Factors

Jobs, jobs, jobs! If the job recovery doesn’t pick up, the market will stall out. Main street is still hurting no matter what the market is doing. Retail investors don’t want to be in stocks but rather in bonds. The so called “Currency War” that some are referring could really come back to hurt Americans and the U.S. Dollar. The dropping U.S. Dollar will make import prices higher, along with higher gas prices. Remember when looking at stocks or ETFs to look at more than just stocks, take a look at what else that could affect the potential stock or ETF.

Is Now The Time For Stocks

Stock Mutual fund inflows since May have been net negative, but could that be part of the “Sell in May, and go away” theory? The S&P that currently trades at 13X trailing twelve months (ttm) earnings might seem cheap to some, while others may say the earnings of the past twelve months are artificially inflated by government intervention. If you are in the bullish camp, look at individual stocks and make them give you a reason for buying them. The S&P 500 is still unable to stay above 1150 and until then the market looks range-bound.

Are You Afraid Of Stocks?

If you are afraid of stocks, the game is not over; you can still buy many different types of bonds. Although the returns are meager on bonds, they can and sometime will beat the overall stock market. Just remember as with stocks, the riskier the bond is, the more of a chance you have at losing money. Bonds are a great way to add income to your portfolio but some stocks and/or ETFs yield more than bonds.

Whichever way you decide to go whether long/short stocks or bonds, keep your portfolio diversified and have cash ready to make your next move.

Many stocks are trading at single digit P/E ratios and valuations that make the market look cheap. Although I am not too much into fundamental investing, I have to consider fundamentals when trading. Value investors are working overtime right now trying to distinguish whether these valuations are of actual value or whether they are pointing to a weaker earnings outlook.

What Am I Doing?

Sitting it out for now. If I am not in the market, I can’t lose money. I see companies hoarding cash, retailers reporting mixed numbers, employment not improving, and terrible housing data. The technicals of the markets say there is more room to the downside but with any earnings season around the corner, volatility is the only certain thing in the markets. Some stocks will win and others will lose, I will sit on the sidelines and wait.

Fundamental Meaning

In a simple explanation, the market has just got more expensive. The Dow closing above 11,000 means nothing fundamentally. Don’t shy away the markets because they just got more expensive as the first company, Alcoa (AA), reported its quarterly earnings after the market close today. If earnings come in strong, then the market could be undervalued and send the market higher.

Technical Meaning

For technical traders, the Dow closing above 11,000 means almost nothing. So, what does it mean? Technical traders like round numbers. Other than that, the trend is still moving higher.

Psychological Meaning

This is probably the biggest meaning of the Dow crossing 11,000. It’s nothing more than a psychological number. With every movement higher, retail investors start feeling more and more confident about dipping into the market. Keep in mind: An inflow of retail investment usually indicates a top, whether long-term or short-term as retail investors are always the last into the market.

By no means am I calling a top in the market. Just remember that 10,000 was only about 8 weeks ago, which represents a 10% move in a short period.

The Technical Side

Looking at the chart below, you can see the trend is still intact but momentum seems to be running out. The trend is your friend and you should trade it as so. What do you do when the trend looks like it is about the break or reverse? Buy protection in the form of puts, shorting against long positions, or just go flat (no positions) until you have evidence the trend is still intact and continues to move higher or lower, whichever, the direction.

The 10 DMA on the SPX held today but looks like it might roll over. It looks like sellers want to short this market as the recent volume has been on down days.

Economic Data

Jobs, jobs, jobs. This week’s jobs number may be crucial to market direction. It will be interesting to see how traders will react to the reports. The Census jobs will skew the employment reports. If they come in worse than expected, even with the Census numbers, the market is likely to sell off. Jobs are a lagging indicator but with almost 10% of workers unemployed, it has the power to move markets. The ADP numbers that disappointed traders could give a sign as of what to expect from the payroll and unemployment numbers.

Now, might be a good time to take some profits off the table or to buy some protection.

Citigroup (C)

Citigroup is in a turn-around phase and once it pays back the government, this stock has the potential to move much higher. This stock is a longer-term trade or more like an investment, which could see a double in price action over the next few years.

SciClone Pharmaceuticals (SCLN)

SciClone is a Chinese pharmaceutical company that operates mostly in Asia but sells its primary drug ZADAXIN in 30 different countries. SciClone Pharmaceuticals recently had a big upgrade, which has driven up the price. SciClone Pharmaceuticals has many products in testing phase which once completed could drive the stock higher, easily reaching the $5/share mark.

Conexant Systems (CNXT)

Conexant Systems is a semiconductor company that recently reported a less than expected earnings loss. The stock currently has a PEG ratio of 0.33. Conexant closed today at $3.64. Although the trend is down, the stock may find support at around $3.00 as the 200 DMA will support the price. This stock is a trade and not an investment: place stop losses and be prepared to take profits quick.

Xinyuan Real Estate Co (XIN)

Xinyuan Real Estate is a Chinese property management company that also engages in residential real estate development. This stock trades at less 3.86 times forward P/E and at a PEG ratio of 0.14. If you believe in the Chinese real estate bubble, stay away from this stock or take it for a quick trade. The stock is currently selling at a discount to book value and presents a promising trade for a couple points.

Global Ship Lease (GSL)

Global Ship Lease leases container ships to various container-shipping companies with long-term contracts at fixed rates. The company is selling at less than book value with the current price/book ratio of 0.66 and a P/E ratio of 3.22. Global Ship Lease has 17 ships currently on the water with two more coming at the end of 2010.

Trading penny stocks significantly increases your risk. Most of the companies listed are microcap companies that can also increase risk. Please research these stocks before making any purchases. Consider penny stocks speculation and allocate the appropriate funds to them.

DISCLAIMER: I do own shares of SciClone Pharmaceutical.

Exports and Imports

China exports a flood of goods to the US and has for many years. The trade deficit has been in China’s favor since at least 1985 according to the US Census and has significantly increased over the years. Both countries need each other but who needs need whom more?

China Is The Largest Holder of Debt

China is the largest holder of US debt account for almost $900 billion in January. Not only are they making the products that the US buys, but they are also financing our government’s day-to-day activities. If China were to pull out of US treasuries and start investing elsewhere (which has begun), how does the US government finance it activities because they can only raise taxes so much on an already suffering consumer?

Who’s Manipulating Currencies?

Some of our elected officials claim that China is manipulating its currency and keeping it undervalued. The Chinese Yuan, which is pegged to the US Dollar, may be undervalued or could the US Dollar overvalued? What is in it for the US if the Yuan is undervalued? Yuan higher, US Dollar lower…China would have more money to buy discounted treasuries?

“It is the single biggest step we can take to promote U.S. job creation, particularly in the manufacturing sector. We plan to move forward with revamped legislation on this issue in the coming days,” said Senator Schumer.

Unless the currency is undervalued to the point that it would revalue the currency at 300 times what it’s currently at, I really don’t see it bringing jobs back to the US but rather inflating the prices on most of the (made in China) products we buy (look around, your probably staring at one now).

If the US government is starting a trade war over currency manipulation then maybe we should rethink some of the roles of the Federal Reserves. Coincidentally, this same organization manipulates the US Dollar through interest rates and the print more button.

The Trading Platform

Lightspeed’s trading platform is an all in one package. Lightspeed is one of the few brokers to offering a great charting package within their platform. Their platform is not for beginners, strictly for the experienced active trader. You can see a basic layout of their platform below.

If you do not understand or have problems with the desktop trading platform, they also have a web trader platform that will seem familiar to anyone who has ever used any online broker. Their web trader platform also provides a good amount of fundamental analysis.

Pricing and Commissions

Stocks – $0.00395 per share plus market center fees.
OTC BB and Pink sheets – $10 per order.
Options – $0.50 per contract, no minimum order.
Futures – $0.50 per order plus exchange fees.
Minimum Account Opening Funds – $2,000

For a full list of fees listed here.

Overall, Lightspeed is a solid broker with cheap commission and a great platform to trade from. If you are looking for a new broker, I would advise you to get Lightspeed a try.

Investing/Trading Products Available

Stocks, ETFs, options, futures, bonds, warrants, mutual funds…and so on (click here for full list). Interactive Brokers offers everything that a retail investor can trade. With Interactive Brokers, you are not limited to just U.S. investments as Interactive Brokers allows trading in 80 different markets.

Trading Platform

Interactive Brokers has a variety of trading platforms to trade from whether using their desktop platform, web trader platform, or their mobile platform, you will always have a way to get out of a trade whether at your computer or not. As for their software, executions are great allowing you to enter orders on charts or order tickets. Their charting software offers very basic technical analysis tools, so a charting program (QuoteTracker, which is free, or a paid program like eSignal) is almost mandatory when using Interactive Brokers for technical trading. Interactive Brokers is geared toward the active trader so fundamental investors will have to do their research somewhere else.

Fees

Interactive Brokers is one of, if not the, lowest cost brokers. There is a minimum of $10,000 to open an account. Depending on what you products you trade, some additional fees may apply for data feeds. See a full list of fees here.

Overall, Interactive Brokers is the best broker for active traders and is quickly becoming a favorite among passive investors.

Commissions

Stocks and ETFs -$4.95 per trade (10,0000 share limit) or $0.0075 per share with a $4.95 minimum.
Options – $0.95 per contract no minimum.
Futures – $0.95 per contract plus exchange fees.
Mutual Funds – $12.95 per transaction.
Bonds – $12.95 per transaction.
Forex – $2.95 per $100,000 traded.
Pink Sheets and OTC BB – $8.95 per trade with no share limit.

Software

As for their trading platforms…well you do not get much. MB Trading Desktop is nice if you like looking at numbers but do not expect any charts unless you are trading Forex. The only charting software will get with MB Trading comes with the MetaTrader 4 platform used for Forex. If you need charts, QuoteTracker is free charting software that works well with MB Trading. Otherwise, you will have to get a paid charting program like eSignal. Although the MB Trading platform is free, some data feeds fees will apply. These fees are waived after a specified amount of trades. See data fees here.

Overall

The commissions are cheaper than discount brokers are but they lack in software. If you already have research tools for fundamental analysis and willing to use free or paid charting software for technical analysis then MB Trading might be worth a look.