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.

ETFs Available To Trade Free Now

Schwab US Broad Market ETF (SCHB)
Schwab US Large-Cap ETF (SCHX)
Schwab US Small-Cap ETF (SCHA)
Schwab International Equity ETF (SCHF)

Available In December

Schwab US Large-Cap Growth ETF (SCHG)
Schwab US Large-Cap Value ETF (SCHV)
Schwab International Small Cap ETF (SCHC)
Schwab Emerging Markets Equity ETF (SCHE)

Are Charles Schwab’s ETFs Right For You?

If you are a investor looking for longer-term investments or trades and like using indexes; then these ETFs are worth looking at. For traders and shorter-term investors, the volume is too low for me to recommend them. When trading stocks and ETFs (other than the Schwab ETFs listed above), commissions rates are $8.95 – $19.95, depending on the amount of trades placed.

Understand that commission free trading is nice, but with Charles Schwab, you are limited to a few ETFs that you can trade. If the volume rises in these ETFs, it might be worth looking into. For now, the products are too limited and commissions on other ETFs and stocks are higher than most online brokers.

Get more information on opening an account and Charles Schwab ETFs @ www.schwab.com.

The Psychological Effect

The psychological effect of the unemployment number crossing 10 percent could have a significant impact on trading tomorrow. If the number comes in higher than expected, the market will probably sell-off. A correction would not necessarily be a bad thing now, as the markets have come a long way since the March bottoms.

Market Looking For Direction

Recently, the market volatility has increased along with the market swings. The Dow 10,000 looks toppy and if the number comes in worse than expected, expect a quick loss in the markets. If the number comes out better than expected, the market will probably continue higher. Those who are short the markets get out of the way until the next source of bad news or lose big.

Be Prepared To Jump In Or Out

You can make a lot of money trading economic new but prepare yourself to get out quickly if the trade does not go your way. If you are trading the employment numbers, please remember your stop orders. The unemployment numbers will move the markets tomorrow. I do not recommend trading economic numbers. If you do so, play it safe and take profits or stop losses.