Monthly Archives: February 2008

links for 2008-02-29

Thoughts On Entrepreneurship

I’ve been thinking of entrepreneurship a lot lately as a way for me to express my ideas and become independent from the corporate purse strings.

Recently I’ve come across some solid entrepreneurial opportunities and I’m seriously thinking about taking hold of them. I’m not talking about being a Real Estate Investor, or Forex Trader but something more mundane, Engineering. The beauty of Engineering is that the solutions to your clients problems are in your head and that you don’t need a big factory to bring them to life. You just need yourself, a computer, and a calculator. The payoff in my mind is immediate and I could make a few thousand dollars over a weekend instead of placing Adsense on my blog to make a few pennies.

It sounds like a no brainer to jump into this but you have to plan it carefully. The majority of all Engineering work a private company does is from referrals and my contact base is not yet big enough to generate enough leads to survive on. I think I’m 50% there so I need time to build that, unless I join my friend in California who has an established one person company.

:)

If I decide to chase these opportunities I’d have to spend considerable time implementing them. A lot can go wrong so I need to prepare a plan and take the first steps toward building a solid client base, saving some money (or raising it) to buy some computers and software, and making the transition. Maybe I’ll ask Howard for some tips, he’s the addicted entrepreneur after all!

links for 2008-02-28

One Business Week Is All It Took

I saw this article posted on the Chairman’s Deli.cio.us link roll.  It seems it took only 6 to 7 days for the asset backed commercial mortgage paper market to start collapsing.

In normal markets, JPMorgan sells $25 billion of short-term IOUs for clients daily. “Within the span of six or seven business days, every single investor stopped buying asset-backed commercial paper tied to structured investment vehicles,” said John Kodweis, a managing director at the New York bank.  [via Bloomberg]

Quite amazing when you think about it.  No?

How High or Low Will Home Depot (HD) Go?

After yesterday’s bad earnings news from Home Depot (HD), I decided to check out potential price targets for this retailer using my Monte Carlo Simulation.

First off, I used to be a shareholder of HD but sold it because it was going nowhere for a long time, but now it looks like a tempting buy. I say that for two reasons: one, the stock has been down since the new CEO came to town and two, I expect to be at HD every weekend, starting in Spring, spending my money buying supplies for my two houses.

HD-022608

Based on my Monte Carlo sim, there’s a strong probability that we’ve bottomed and the low around 25 probably won’t be broken. From yesterday’s close, the short term downside price targets are: $26, with the worst case (and a break of $25) being $22. Short term upside price targets are: $30, then $34, then $38, and then $42.

Remember, these targets can be tossed out the window in a moments notice due to extreme volatility in the markets.� Monte Carlo sims are great, and I love them, but a standard distribution doesn’t hold up well when the markets are panicking!

The market is presenting us with lots of “selective” buying opportunities right now and I’m busying finding them for my 401k portfolio. My recent buy in EMCOR (EME) is working out really well and I’m looking to add HD to my portfolio. I just have to wait for my 401k trading account to open!

Disclosure: No positions in HD, long EME

How High or Low Will the S&P500 Go?

I mentioned to my members in this past week’s Market Timing Report that I would run a Monte Carlo simulation on the S&P500 to see what are the potential upside and downside targets for the S&P500.

The Monte Carlo sim confirmed my suspcisions that the the 1310 to 1340 level was indeed an interim support area and the sim calculated it as 1337. The simulation did indicate a negative bias for the S&P500 for the short term so I’m still concerned that we might see a breech of that level before we turn higher.

SPX-022508

The short term upside targets were calculated as: 1383, then 1429, and then 1475. The short term downside targets were calculated as 1291, then 1245, and then 1199.

Now, these targets were simulated using a Gaussian distribution and we all know how that distribution breaks down in very volatile markets. The chances are that if we do see more downside action, it could be violent and my downside targets would be meaningless.

EMCOR Group Inc. (EME)

Bull.jpgI got tired of listening to those Bloomberg Radio commercials about EMCOR so I decided to check them out to see what the hype was all about. EMCOR Group is one of those companies that isn’t overly exciting, they’re downright boring! EMCOR Group (EME) is part of the Construction Services group and they provide their clients with “construction services relating to electrical and mechanical systems in facilities of all types and in providing services for the operation, maintenance and management of all aspects of such facilities.”

Fundamental Analysis

EMCOR reminds me of the typical engineering company, low gross margins and even lower net profit margins. EME’s current gross profit margin is 11.9% and its net profit margin is a lousy 2.1%. The joke we make about large engineering companies in my field is that they exist just to keep people in employed, not make money! It looks like EME is one of these large corporations that do just this!

It has a PE ratio of 12.9, ROA of 5.1%, ROE of 15.6%, EPS (MRFY) of $1.86, and surprisingly the leader amongst its peer group. EME is outperforming its peers GVA, SXC, PCR, and ARCAY this year! On top of this, analysts expect EME’s earnings to grow between 11.8 to 22.6% this year with its EPS to range between $2.08 to $2.28 (source: S&P). Surprisingly that’s not too bad after all!

Technical Analysis

Technically the chart on EME is short term BEARISH but still long term BULLISH. They reason why I say that is because EME bounced off its 200 WMA and we have not seen a 50/200 WMA death cross happen.

EME-022408

This might be a good place to establish a long term position, a quick monte carlo simulation reveals price levels on the upside of $25, $28, and $31. Immediate downside targets is $22, then $19, and then $16, the worst case scenario is $13.

Neural Net Signal

EMEsnn-022408The EME neural net model indicates no buy or sell signals. In fact the recent market volatility and EME’s price action have made trading EME over the past month a money losing venture.

Bottom line

I like EMECOR because of one reason, our crumbling infrastructure. I’m very BULLISH in the construction services and material sectors over the next 20 to 30 years and I am considering adding any leader, like EME, to my 401k. EME maybe boring and not overly sexy with their profit margins, but if they’re like any other engineering/construction company, they have long term staying power. Consistent growth over a long time wins the game in my mind. Currently its trading its $23.99 and my target for this year will be around $28 to $30/share.

Disclosure: No positions in EME (yet)

Build an ETF Trend System in Excel – Part 2

 

growth-hands-seo.pngThe spreadsheet I’m about to share with you was the basic backend ETF trend system I developed for live trading. I used the RTQuotesXL and AnalyzerXL modules from TraderXL Pro to download the data in real time and create momentum signals on the fly. Note: clicking on the links will download a 10 day FREE trial version of the software, I suggest you do and fool around with it.

 

I spent countless of hours building this spreadsheet (ETF_Trend_System_020808.xls) but have abandoned its development for the time being. For the first time ever, I’m making it available for download on this site. I make no guarantees or warranties for this spreadsheet but I ask that if you modify it, change it, update it, or make it better in anyway to please share it with the world. I want this spreadsheets development to follow the GNU license that covers Linux's development.

Download it and play around with it. I hope that it will be of use to you. As always, if you have any questions, please leave me a comment.

Note: You must have TraderXL Pro installed to use this!  I will post more details about the spreadsheet and what each column means later!

Citigroup Inc (C) – Love/Hate Relationship Part 2

bear.jpgI decided to take a look at my long term buy, Citigroup (C), again. Where have we gone since my last post? Not very far at all! The trend is definitely downward despite two cash infusions totaling $22 Billion dollars over the course of a few months. Will it help? I’m sure the cash infusions will help out their balance sheets but the sentiment on the Street for C, and financials in general, is pretty dour.

Fundamental Analysis

Fundamentally C is breaking down and I can’t help but wonder when the financial beating will stop. Standard & Poors gives C a 3 star ranking, down from 5 stars a few months ago. Its current PE ratio is 36 (a bit high), with expected earnings (note: expected) to be $2.91 for fiscal year 2008. This is a considerable “expected” improvement from the $0.72 earnings for fiscal year 2007 (source: S&P report).

Can C’s share price go any lower? It sure could but this company has been so beaten down that I’m considering buying more. The question is, at what price?

Technical Analysis

Technically speaking, C is flashing SELL. The most current weekly chart shows a “death cross” has formed and the price action is clearly below the 50 WMA. From a technical standpoint I wouldn’t go near Citigroup except to wait for a pull back and short it.

C-022208

Neural Net Signal

C-SNN-022208My current Citigroup neural net model is also flashing a SELL signal from its long entry back on 2/12 for market open 2/13. This trade will likely lose money but the previous short signal on 1/30 for execution on 1/31 would’ve made you money if you closed your position on 2/12.

Bottom Line

This analysis a toss up for me, I really want to add more shares but I fear that C might head lower. Why? Because the talk on the street is that another wave of financial calamity maybe on the way for Citigroup! Although things are getting to be overblown in my opinion I think I’ll stay on the sidelines for a bit until this gloomy cloud passes.

Market Timing Report & Blog Updates

Good Snowy Morning! We have about 3 inches of snow on the ground and I have a major submittal due today! Looks like it will be a late morning and a late evening as I spend time digging out my driveway!

This is just a quick note to update my readers on a few items before I start shoveling. I should be resuming posting with more frequency next week, but before I do, I’ll be answering the ton of emails I’ve received from readers. If you’ve emailed me, please be patient for your reply!

In other news, I’ll be sending out my Market Timing Report this weekend so if you want to get it, you’ll have to sign up here by Friday midnight!

I started offering my RSS feed via email, you can sign up for it by entering your name in the side box or clicking here.

Lastly, I’ll be installing a new blog template next week so things may look “funky” occasionally. I appreciate your patience.

U.S. Architects See Demand Drop as Developers Fear Recession

Some of my Architect friends have been talking about the lack of work in the pipeline and they definitely are worried about slowdown in residential and commercial real estate. Just like Civil Engineers, Architects are another canary in the coal mine.

The Architecture Billings Index declined to 50.7 last month from 55 in December, the Washington-based institute said today in a statement. That was the lowest score since July 2006, when it was also 50.7. Any score above 50 indicates an increase in billings from the previous month.

The drop may signal a “sustained” decline in demand from developers of warehouses, offices and apartment buildings as the economy slows, the institute said. Weakness in the U.S. housing market is spreading to other parts of the economy and prompting economists to strengthen their forecasts of a recession. A Bloomberg News survey taken earlier this month showed chances of a recession were now even, compared with 40 percent in January. [via Bloomberg]

I think it might be time to update my Economy and Engineering Work Poll again.