It was good seeing you and your family Sat. at your Mom's house. Diane & Linda are really, really nice - You are a lucky man. Hopefully we can get together again soon when Elyse is home on a school break. I am going to take you up on your offer to analyze a couple of stock buys that I am considering (KMP), (CX), (IDR). Take a look at them and let me know what you think.
Send my love to the girls,
Your Uncle Aaron
Dear Uncle Aaron, Thank you for the note. We had a great time Saturday, and it’s so good to see you and Aunt Joyce, my mom, and George so active and young after all these years, and we will certainly try to get together during Elyse’s break.
I will be glad to look at these company’s charts and give you my humble opinion.
As we discussed, you are looking for “investments” and as such, I’m assuming that you are interested in the long term. I cannot stress enough the amount of risk in today’s stock market, although it may seem to you and Auntie that there is no significant risk. I didn’t mean to be disrespectful when I laughed out loud when you mentioned your interests in a Chinese cement company and Teva, an Israeli pharmaceutical company. You may make some speculative gains in these stocks, but I truly believe that we outsiders don’t know enough about such sectors to consider these actual “investments.” I do know an old friend who manages a French-owned generic drug production company’s production facility. I can tell you that this is a low margin cut-throat business, and my friend is under a lot of stress with his commitment to his job, while he figures out how to put two sons through college and maintain a normal family life. These generic drug companies are not the money makers that you would be led to believe by watching business TV. If they were, you can bet that they would pay higher dividends. Remember how it was when I was little?
I’m sure you know that in spite of how great our economy appears on these TV broadcasts, a lot of folks are suffering in quiet desperation trying to keep their jobs and maintain some kind of comfortable life while the economy remains sluggish.
In times when stock market valuations are cheap, it may be possible to make some broad assumptions about the businesses based on their long term history and invest based on valuation; but these days everything is so expensive, that stock market gains are mostly available only to those who are willing to take on excessive amounts of risk, or trade in-and-out of their positions. As you know, I do some work with technical analysis which is basically the study of chart patterns to minimize risk and maximize gains using simple data of the past and present to predict the future. The object of technical analysis is to buy the stock that I like at price where, if I am wrong, I will know about it soon enough to sell-out my position at a small enough loss to make it insignificant in the long run. If I’m right, then the gains may be substantial and quite significant in the long run. With that said, lets look at the charts.
I do not follow Kinder Morgan Company although it is/was a very popular stock. The long-term trend of KMP is quite bullish as you can see from the 3-year weekly chart. However, it concerns me that KMP took some serious technical damage when it dropped from the mid-50’s to the mid-40’s in the course of two weeks. The relative price trend is recently down, and after apparently topping at almost 55 last summer, the overall trend has been down. The RSI line shows that KMP has lost momentum, and even though this would not be a reason to buy or sell, momentum is a warning to “watch out.” The stock sits below its 10-week moving average and this is not good. As paradoxical as it may seem to you, I’d wait for KMP to close above that blue 10-week moving average line before I’d consider buying it. Similarly, if this stock were to close decisively below its 40-week longer-term moving average, this would not be good for long-term investors. If you were interested in buying it, you may want to consider waiting until it dropped just below the red 40-week moving average line as has happened several times before. I’d then buy it and then sell it (at a small loss) if it were to close lower than its previous fall of ’05 low.
But it does concern me when this energy company seems to be underperforming its sector. It also concerns me that downside trading volume appears to be high as indicated by the red arrows.
From the looks of the CX chart, I’d bet that your broker is recommending this stock! Don’t buy it now – it is too risky! Notice how the stock is rising at a higher rate than it ever has? This parabolic move is indicative of emotional buying and a lot of people like you get a lot of calls from their brokers. But a look at the volume shows that the stock is rising on diminishing volume. If I owned this stock at a lower price, there would be no reason to sell since all trends are intact. But this stock is in no position to purchase at its current technical position. It is due for a correction.
The chart of IDR is showing similar characteristics as CX. It’s risky at these levels. I do not have a lot of time to analyze this company in depth; but I would caution you as to the fact that according to Yahoo finance, this company has a billion dollars in debt, and more debt than equity. While such stats don’t make or break a stock, especially in these speculative markets, there are thousands of stocks to buy and it is simple enough to just eliminate those with a lot of debt. Remember what my dad used to say about debt?
If you have a small amount of mad money, I would suggest investing in Mannkind Corporation (MNKD), a stock that I now own. I don’t know a lot about this company except that their Chairman and CEO, Alfred Mann, is one of the richest men in the world after having sold his company, Mini-med, to Medtronic in the early part of this decade. Richie made a ton of money in Minimed stock at that time. Recently, Mr. Mann has bought into Mannkind Corp. in a big way at prices that were sometimes higher than the current quotation. Based on this guy’s history, I’m thinking that this is a good speculative investment. Although the company doesn’t make money now, they are involved in diabetes therapeutic products. Mr. Mann has a history of knowing what he is doing, and although one never knows for sure, I think that he is probably not trying to lose money with his purchases of company stock in the open market.
There are also some interesting characteristics in the chart. Notice how the stock is near the blue “up” trendline which may indicate a good low risk entry point. It is also above its 10-week moving average too – another good sign. The black “up” volume candlesticks are taller than the down red candlesticks. This probably indicates quiet accumulation (and perhaps Mr. Mann’s buying – just the opposite of KMP. I’d buy a little at about $12/share and only sell it if it breaks decisively below the up trendline. If it breaks out of the longer term down trendline, I’d add to my position.
Remember, in spite of how it may seem, all stocks are speculative. Until winter break, best regards.
Your nephew, Martin
The market did very little today, with the most significant thing sticking in my head, the highest drop of the CPI in 50-years as I think I heard on Bloomberg radio. As they say in Phila., “Yea Right!!”
Oil was down and the transports were up by 3/4 of a percent.
Have a great evening.
James J. Puplava Financial Sense™ is a Registered Trademark
P. O. Box 503147 San Diego, CA 92150-3147 USA 858.487.3939