Market Update 8-3-12

Ok, I woke up late this morning but thankfully I hit my target price on Walmart this morning.  The market looks poised to rally today and I see a bunch of great setups.  Microsoft (MSFT), GE and DNKN all look good.  The three stocks that have been giving me problems these couple weeks all have a bullish candlestick and are moving up on strength.  MSFT and DNKN are oversold in the stochastics, they also had a stochastic crossover, and are at the bottom of an upward channel.  All of these are red hot signs of a nice upward move.

Alright, the jobs report was better than expected.  It’s the best month we’ve seen since February.  Around 50,000 more jobs were added than expected and the market responded favorably to it.  You can never be sure what the market will do even when the news is positive because many traders are waiting for QE3 (Quantitative Easing 3 from Ben Bernanke and the Fed) and the Fed won’t intervene unless they have too.  That’s the reason why the market has been going up sometimes off of bad news and down on good news.  It seems contradictory but ….that’s the market.  Thankfully this time around the market went up off of good news.

Market Update 7-20-12

So I tried to hedge my call position in Microsoft with a put position and when earnings beat estimates and the price shot up I was ready to get out of my put position and let the call run.  However after getting out of my put in the first few minutes the price went up a little bit but dropped back down.  So not only did I lose money on the put I’m now down on my call position.  My other question is why did the call price stay at the same level but the put price went down, when in after hours trading the price jumped up at least 5 points?  

So here’s my lesson.  Don’t trade on earnings announcements.  Only trade during the day.  If you have to hold on to the trade overnight only do it for a week and two weeks max.  The market makers change the pricing too much and even if the stock price goes back to the same level you bought it at the option price won’t be the same.  

“An ounce of patience is worth a bushel of brains”

If I was patient enough my put would have developed and I would be in the money.  I could have gotten out of my call and still had profit.  Also if I would have waited my Walmart trade would be back up.  So lesson learned. Don’t try to over­-think your position.  What goes up must come down and what goes down must come up.

Market Update 7-19-12

It looks like we are on another run today.  The bulls are charging even before the bell has rung.  IBM’s numbers are up and tech made a monster run yesterday.  I knew it would happen eventually because many of those stocks were undervalued according to my stock value calculator.  As always a rising tide floats all boats so many stocks were up yesterday.  Look for another run today at least in the morning.  I don’t like buying when stocks are high so I’m going to wait and see what happens in the first hour.  According to Day Trading Rock Star usually there’s a 9:50 reversal of the trend in the morning.  

I did get into WMT yesterday because it got real low and I was just tempted to get in.  It didn’t have the same strength as it normally does but hopefully with this bull market WMT will charge back up to its highs.

I may look to get back into MCD if it pulls back.  The technicals look good, I just want to see the 20 day moving average move closer to the 100 day on the daily chart.  It’s also trying to break through a resistance line. It’s been testing it for 5 days so I won’t feel confident until it breaks through.

MSFT has been grinding higher and has almost established its trend.  It is about to break through an important resistance level.  I’ll wait till it gets through that level and pull back then I’ll be more confident about getting in.

CTDT the speculative stock last week fell off big time yesterday.  I only had a small position in it so I’m fine but it just goes to show there are folks out there that will bang the table on a penny stock to drive it up and then take all the money and run.   The best and only way to play the market is to know the company and its value and then buy the dips, watch it rip, and sell the tips.

How to Value a Stock

I did some serious study this weekend and came across a few great articles about how to value a stock and how to know when a stock is undervalued and is “on sale.”

It is important to be aware of overall market conditions that will bring stocks down to discount levels.  With that said regardless of market conditions if a stock is cheap then eventually people will buy it.  That is the case with a few stocks that I checked out this weekend.

Before I post my list I want to give the reasoning behind the list so these picks will make sense.  I read several articles that talked about how to value stocks.  They all had good approaches and formulas:

http://stocks.about.com/od/evaluatingstocks/a/Pricesale020305.htm

http://www.stockpriceanalysis.com/

http://ezinearticles.com/?How-to-Calculate-a-Stock-Price&id=2589837

This last one however had a more comprehensive formula that just made sense in how to value a company’s stock.  If you take what a company is worth right now if it was going to be sold you would have a good indication of its value.  That formula would take into account the assets minus the liabilities, available stock, and future earnings growth.  This will give you what the stock price should be trading at based on the value of the company.  If you compare that to what the actual price is you can find some seriously undervalued stocks (and some seriously overvalued ones too).  This method will also help you determine a target price to take profits.

I added another component to this method to further refine the stock picks.  This was to look at the analyst reports on Yahoo Finance to come up with a professional opinion of the target price for the stock.  I look at the high, low and mean target price based on 20-30 analysts opinions and compare that to where the stock is currently trading.  

By calculating the sell-now value of the stock and the analyst target price I can see if a stock is undervalued or not and also set my “take-profit” price.

With that said here are my stock picks for this week (they are not in any particular order):

CMCSA

Trading at 31.36 according to the formula, the value of the company is 54.33

The mean analyst target price is 34.6 (high 41, low 31)

TGT

Trading at 58.07 according to the formula, the value of the company is 112.51

The mean analyst target price is 63.67 (high 69, low 54)

MSFT

Trading at 30.18 according to the formula, the value of the company is 61.97

The mean analyst target price is 35.69 (high 40, low 29)

INTC

Trading at 26.16 according to the formula, the value of the company is 60.58

The mean analyst target price is 29.41 (high 35, low 19)

CAT

Trading at 84.61 according to the formula, the value of the company is 182.3

The mean analyst target price 124.68 (high 142, low 95)

WMT

Trading at 71.36 according to the formula, the value of the company is 113.99

The mean analyst target price is 67.39 (high 79, low 55)

Although these prices are based on the actual “sell-now” value of the company, you have to take into consideration the current market conditions and any news coming out about the company.  In short...Do your homework.

P.S… If you donate $5 ...I will send you the Excel Spreadsheet with the Stock Valuation Calculator plus the list of 25 stocks that I studied.  Also included on my spreadsheet is a list of 37 companies that pay the best dividends.

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