FADE "SELL-THE-FED-NEWS"

A rally in front of the Fed, no less. What's that all about? I can't imagine a lot of investors would jump in, other than those that would like to close their short positions. I believe this rally will set up a perfect fall for the stocks after the Fed speaks.

WAITING FOR THE FED

Futures are up, take that, Big Ben! However, like other days of this week, the futures are not to be trusted. There's almost no chance that the market will move significantly before 2:15 pm. If the market opens higher, it is likely to fade away quickly. Numerous talking heads on the tube will not help the market either.

It's hard to believe how and why the market will move up even after the Fed speaks. Let's examine the scenarios:

• Scenario 1 (50% probability) - 25 and same language (data-dependent, vigorous, may increase again in August, blah, blah, blah...). While it may pop up initially, I can't imagine anyone would like this scenario, and the market will be sold off, possibly significantly.

• Scenario 2 (25% probability) - 50 and pause. This is a scenario that has been talked a lot lately. I believe the market will likely like this one and will likely move up, resulting in a near term rally. This makes sense, too much sense, but that is wishful thinking. I do not believe the chance it very high. Even it does occur, the language will have to include: "while......, we remain vigorous and will not hesitate to raise.....".

• Scenario 3 (15% probability) - 25 and pause. Obvious the market will like this one and rally.

• Scenario 5 (10% probability) - 25 and done. Dido.

Again, I believe the path of the least resistance is, unfortunately, DOWN. Having said that, the market could rally because it has been down so much during May-June, and it could potentially rally by fading the "sell-the-Fed-news". (Fade the faders). It this occurs, the rally, while potentially fierce, may be again short-lived.

SHORT-LIVED RECOVERY

The growth stocks got whacked this morning for none particularly reason. Take a look of MRVL, down more than 10% for a piece of news where it has purchased some business from INTC. This is rather damaging technically as these stocks have been rising over the past few sessions. This slow, downward market is really difficult and truly testing investors' patience.

RADN

I am watching RADN closely. It has declined sharply by more than 40% since it peaked in early March, compared about 9% for NASDAQ. Being a small stock, it is in the group that is quickly out of favor. At this level, it offers compelling value. It is traded at about 18X of 06 and about 14X of 07. The company is in a good space with potential decent organic growth. Technically, it has broken its down trend in the last few sessions and it holds very well here. While the market continues to trade in a lackluster fashion, there are some subtle but encouraging signs: it has stopped falling, commodities appear to be stabilized, small and growth stocks seem to move up in the last few sessions, and volatility has subdued a bit. A lot of talks of the pending Fed decision. At the end of day, it is most likely that there will be no major surprise in the announcement and the market probably will bounce a bit thereafter. In summary, this is one can be owned here, but technically and fundamentally.

QCOM

JP Morgan downgraded QCOM this morning, I guess that explains the decline of yesterday and today.

• citing its belief that contract negotiations with Nokia over the Finnish handset maker's WCDMA license agreement could very likely end in a stalemate with the companies failing to agree to new terms without the third-party intervention the joint venture with Sanyo Electric would have provided. The broker told clients it believes there is little-to-no chance of Nokia's WCDMA royalty rate increasing and a non-trivial chance it could decrease.

Hmm, Is it a bit late for this downgrade? The news has out for a while and QCOM has fallen significantly.

PLAY THE GAME

XRTX got killed today, taking a near 7% haircut, after it raises its outlook for its next quarter by more than 40%, no less!. Alright, they missed by 2 cents (0.85 vs 0.87 consensus), and the market fell, but the blame has to be placed squarely at its management. It raised its Q2 outlook during last quarter report by 55% from consensus, and the stock jumped by 18%. But they forgot that they not only have to promise, but they have to beat the number, or else. Hadn't the management learnt game of "UPOD" (under-promise, over-deliver)? They could, and should have, raised the guidance by 25% and beat the raised guidance by another 25%, and the jump of the share price would have sustained! Now they are back to square one, the same share price before they raised the outlook, despite the significant increase of earnings. Now, I hope the management has learnt a few tricks, and played this game as it should be played, and I hope that they have left some margin on its 40% increase of outlook on its Q3. More importantly, they better beat it, or the 40% raise would have resulted in a 10% down of its share price!

MRVL

MRVL is holding really well in this weak market. In fact, it has done rather well in the past few days, although it remains in its down trend. Watching it closely.

QCOM

Half of my QCOM position was stopped out this morning for a small gain. I thought the market would fade the weak open this morning, unfortunately the fade was not very strong and was overrun by sellers. Stay on the sideline for now.

STABLE COMMODITIES

All international markets are up and Japan up significantly. Futures are slightly lower, and commodities are stable. I believe this rally has legs and this lower opening is buyable here. I am looking for tech and commodities (copper and energy) to play today.

XRTX 2

XRTX announced, missing consensus by 2 cents and raised its guidance significantly. It fell down in the after-market trade. It may be under some pressure tomorrow. However, its 06 and 07 EPS figures have to be raised by analysts community given this strong Q3 guidance. I would buy more if it falls hard tomorrow.

FRONT RUNNER

I was out all morning and the market stages a strong rally. Talking about bad timing. But we'll take it. Could this rally sustain until the big Fed day? It could be. I suspect a lot of traders believe the market will rally after the Fed speaks and are trying front running the potential rally. The stability of the commodities is also encouraging. Having said that, I am sitting tight and enjoying this little rally.

PLAY OF THE DAY

Take a look of ININ. It has gone straight up for the past five sessions and broken up to new high with very strong volume, despite the weak NASDAQ market. I am hesitate to chase it here though as this is a rather small-cap ($200 million) with pretty expensive valuation. I put it up here for those courageous break-out traders.

SUGAR DADDY

How slow and boring is this market? Sugar Daddy Wayne Pace got more coverage in CNBC than any other subjects (CFO of Time Warnar, in case you did not know). Bloggers also had a field day, including yours truly. Nothing beat a sensational story, even though it is such an empty one (for lack of details)? Oh well, we might as well have some fun. We are certainly not having any from this market.

XRTX

XRTX fell by 4.8% today with a fairly high volume, not a good sign in front of its earning report tomorrow after market close. Is this just a reflection of the slow and weak NASDAQ market, or something more sinister? The above-average volume is worrisome. On the other hand, it is hard to imagine that company will miss its earnings, given it increased its outlook at the end of Q1/06. I suspect that a lot of weak hands do not want to hold position in front of earnings. I believe the company will report strong results and outlook will remain positive. However, even a strong earning report with a positive outlook may not be sufficient to raise the stock price. Such is the market sentiment!

URANIUM BULL

figures are up slightly after the housing numbers, which are interpreted as modestly positive. Most commodities are flat as well. It looks another direction-less, slow day, which again favor the down side.

I am looking at some uranium stocks, both large and small caps. The group has come down significantly, particularly large cap such as CCO. This is an extremely popular stock and always expensive. Is this a rare opportunity to add this name on discount? Chart still looks pretty healthy and fundamentals for uranium remain strong.

DOWN IS THE LEAST RESISTENCE

Most international markets are in green, and futures are up across the board. You can almost feel that faders are going to come in. Commodities are rather weak, with gold and copper again in lead. The market will be rather slow and quiet in the next week or so until the Fed speaks, even though nothing will surprise anyone. Then the earnings will take over. Earnings will be good, although comparison might be a bit difficult. Would good earnings fuel the market? I doubt about it. In the absence of meaningful news, the least resistance for the marekt is, unfortunately, DOWN.

WATCHING THE OPEN

The futures are red, not dramatically. It's kind of expected after the strong rally of yesterday, and I do not know if expiration has any impact this morning. A lot of traders do not want to hold a lot of positions in front of the weekend. (There are also a lot of sports going on right now, the Open, the FIFO World Cup etc). On the other hand, all international markets are very strong and commodities are up across the board. I actually prefer a lower opening with a strong close. Look for reversal.

DISCIPLINE

Despite my near term positive bend, discipline dictates that I trim and take some off the table. I sold my position of ATHR for a nice profit on this ramp up.

ELOS

On the subject of sell-side report, CIBC issued a report on ELOS today and reiterated "SO" rating with:

• "channel checks suggest that 2Q06 sales are on track, Vela will likely be up sequentially from 1Q06 and the new eLine Series seems to be doing well. The increase in sales reps to 55 from 40 seems to be starting to pay off."

(I do like this channel checks stuff from sell-side analysts. It sounds so institutional, something you and I, i.e. small investors are unable to do). This is a strange one, and at one point was of one of Cramer's favorate, though it fell of his favor as quickly. My interest is up a bit, simply because it is universally hated, both the sector and the stock, and it is dirt cheap. On the other hand, it is not traded well. On a day like today, it actually went down.

MEMC

Lehman Brothers analyst Tim Luke is touting WFT this afternoon with a note:

• "Channel checks and discussions with polysilicon suppliers lead us to conclude that the polysilicon shortage is likely to continue through into 2008 and potentially 2009. We estimate that poly spot prices have increased over 160 percent year-over-year to around $200/kilogram in 2006," Luke wrote in a research note. "Near term, we believe our second quarter 2006 estimate of revenues of $360 million and earnings per share of 42 cents could prove conservative given the poly pricing environment."

I have to agree with Mr. Luke. This is one of my favorite stocks, and I have been in and out of a bit. I believe the stock remains very cheap here.

FOLLOW "FADE CPI" CROWD

I added some ATHR this morning to see if this bounce has any legs. I have added a lot of techs in this melt down. While I am a bit earlier (as usual), I believe the chance is good that this bounce could last for a few trading days, until Fed speaks on 06/29. Then all bets are off.

TRADER / BLOGGER COMMUNITY

I have been reading a lot of bloggers in the investment and/or trading community and I found it fascinating. This is a surprisingly tight community with extensive cross-links, a lot of communication (mostly via blogs, comments, Q&A, and discussions), a lot of respect and strong support for each other. There are a lot of commonalities and I put this piece together, just for fun. I hope my generalization of this diverse community will not offend anyone.

1. Most have gone through the Tech Bubble, September 11, and the recession of 01-02, and survived and thrived. They are veterans and proud of it (born in the bubble, baptized during September 11, survived 01-02 recession, triumphed in 03 rally, and matured today).
2. Almost all of them love what they do (reading, writing, investing, trading, and original thinking), and they will never exchange it for a lifeless office or a cubicle.
3. They are voracious readers and very fast learners. They read a lot of books, news, commentaries, studies, arts, politics, current affairs, and most importantly each other. They read, they learn and they share (they come, they see, they conquer).
4. They are diligent writers and keep up their blogs. Their writings, while most short, show a lot of characteristics described here.
5. They are impressively original, and fiercely independent, and consider these factors keys for their success. They guard their originality and independence with the same passion to investing / trading.
6. They are in the cutting edge of technology, not only with respect to investment in tech, but also to using technology, to being aware of new technology development and trend. They are intellectually curious, adventures and resourceful. They are willing to try new gigs and always spread around the community. I refer them as "Beta-ers" because they will be the first group to try "beta" version. Google ought keep this group in mind whenever it issues a beta version, which it has done rather frequently.
7. Their investment philosophy, while diverse, tends to be technical in orientation. However, each has developed its own methodology, which is reflected in their writings and blogs, and usually becomes the key feature of a member's blog. Such features, in turn, attract a lot of readers, particularly within the community.
8. Although most of them are professional traders, by which I mean they make their living by investing and trading, they consider themselves as small investors and tend to hold contrary views.
9. They are usually very disciplined investors.
10. They are deadly honest and generally are not afraid of admitting mistakes in their writing and postings.
11. Different from institutions, they are accountable as most update they portfolio recommendations regularly (monthly, quarterly, and annually). They should be. It's their own money at stake.

Comments are welcome.

CAN BULLS FOLLOW THROUGH?

Finally we got an up day for a change, and the strong closing was also very encouraging. Now let's see if the market can follow through for the next couple of trading days. Expiration probably distorts this market a bit.

I was watching commodity stocks all day. While most of them were up, there was no momentum. I sensed a lot of hesitation and indecisiveness. Despite the oversold condition and cheap valuation, there are still a lot of concerns about the liquidations squeeze. Precious metals, and copper may have a bit down side risk.

Stock to watch: AAPL was weak all day despite the rebound of NASDAQ due to this little patent probe by ITC with respect to CREAF. Is it time to pick some AAPL? Maybe, although it took out its recent low today. Frankly, I thought the easiest way for AAPL to deal with the situation is to buy CREAF out, which would not cost it more than $500 million, a pocket change for AAPL, and could claim some synergy of legal expenses for both side, not to mention a boost of its stock price.

UPDATE ON SMTS

On SMTS, as I expected, the CEO practically raised the guidance during the conference call. He indicated that (not a direct quote) "there's some upside on the bottom line numbers as it is ahead of plan, however, the timing is uncertain due to increasing sales & marketing, R&D, and other non-operating expenses".

BUYING CPI NEWS

The future market is green, red, green again, though modestly, even with a higher core CPI number. I am not surprised because there are a lot of "buying the CPI news" investors there, including yours truly. I would have preferred a lower opening, higher closing, instead of the recent pattern of higher opening and sell-off closing. The more intrigue question is what would happen with commodities, particularly metals, after the bloodshed yesterday? I believe metals might have a relief rally here, although I am not too sure how far it will go. I may add some metal stocks today, provided that gaps up are not significant.

On stocks, SMTS announced a great quarter with EPS of 0.15, beating estimate of 0.10. The company maintained its full year guidance of 50% revenue growth and 0.40-0.42 EPS. I believe the company is playing the game of UPOD (under-promise, over-deliver). I can see 0.5-0.6 EPS easily. "What an ugly chart", a technician would have said. I agree, but I still like this stock. There's not a lot of 50%+ growth stock out there, particularly not a "quasi-monopoly". If you want to own this one, be prepared for a rough ride.

LIQUIDITY SQUEEZE

As the market continues to fall, there are a lot of chats about "liquidity squeeze", a sort of "margin calls on the hedges". So this correction is not about Big Ben, nor inflation, nor slowing economy, but a concerted effort by central bankers (starting with Japan) to pull the liquidity rug under hedges. If that is the case, shouldn't we, the small investors, i.e. non-hedge types, start to buy this margin call on hedges? We don't have the liquidity issue as we are not terribly leveraged, i.e. we did not get margin calls, (yet?). Isn't this then a terrific buying opportunity?

FLIP FLOP

My small position of LEH was stopped out this afternoon. That was a rather stupid move on my part, prompted by Mr. Bernake's "pause" posture early. Should have sold it earlier.

LINKED BY KIRK

I am really thrilled that I got linked by The Kirk Report, one that I read every day and respect greatly, and one of my favorate bloggers, which sits on the top of my LINKS.

BAD NEWS IS GOOD NEWS

You can almost feel the nervousness before the PPI numbers as futures were all in deep red. Then it jumped right as PPI was released, and it wasn't as bad as expected. Could the market react in the similar fashion with the CPI number? I would not be surprised. A lot of negativity are baked in the market and a "bad news is good news" reaction is at least possible. The question is whether to take profit on this little up day. I still believe a short term rally is possible, even likely given the severe oversold condition and the overwhelming negativity. It may test yesterday's low again. I am going to hold steady and see if a relief rally may develop.

CAN YOU HANDLE THE TRUTH?

I can't believe I am doing this. I added some QCOM at closing. Technicians would have said that I was craze, given the ugly chart, with no support whatsoever, and the market showed no signs of turn-around in anytime soon. On the other hand, the negativity is extreme and NASDAQ has been falling for seven consecutive days, without any relief. The NAS is extremely over-sold. (I know, I know, the market could be even more over-sold). QCOM is one of those stocks that are always expensive, and you always hope that one day it may fall, so that you can get in. Here it is, it has been down for about 25% from its peak. Do you have the courage to add on? My strategy is: if it bounce in near term, I may let it go. If it not, I do not mind hold it through. Despite the fear of inflation, I simply do not see a recession coming to my way.

BOUNCING COMMODITY?

Is commodity correction over yet? Commodity stocks have certainly declined significantly, particularly the large caps. In the senior oil producers, PCA, CNQ, TLM, SU (the "Four Horses" in the Canadian energy sector) have all fallen sharply, in the metals, AL, and TEK.B. The market probably has a bit to go on the down side, but these stocks could have a short term bounce. I particularly like TEK.B here, despite the ugly chart pattern.

SELLING INFLATIOOIN

Futures are up again this morning. Can this be trusted? I doubt. There's a lot of "hammer" talks and some actions on Friday and it was wrong as the market fizzled at the closing. Again, I am looking for faders coming in the morning, and probably will be direction-less for the next couple of sessions until inflation figures. LEH announced all around decent numbers and it may pop up a bit, until the market turns around. This market is not buying good earnings, it is buying good inflation numbers (or rather it is selling bad inflation numbers). Commodities are flat, but stocks probably will decline. All in all, another slow summer day is ahead.

CAPITULATION-MINI

So we got the "capitulation-mini", and we got a very impressive reversal. Now what? In the near term, I believe a rally will be likely as indicated by today's future market. This could last for a while until Fed speaks at the end of June, then it becomes more mucky. Second quarter reports will likely be decent, but how much the market will discount the rear mirror view?

As for specific stocks, LAKE announced its Q1/07 results and it missed by 2 pennies, and also lower its full year guidance to its lower end (8% revenues and 12% EPS). While slightly disappointing, it remains very cheap (about 12X of its 07EPS). However, I believe this business is way to difficult for LAKE, which is the smallest player, very little pricing power, no control whatsoever of its input costs, and limited growth opportunities, international growth notwithstanding. It has to constantly cut its costs. All in all, it is just not a compelling story. Remember, cheap for reasons and cheap could get cheaper.

On the other hand, CDV had a great quarter, strong revenue and earning growth, exceeding expectation, strong backlog, raise its guidance and increase its margin expectation. It is on its way to make at least 0.40 this year, which makes 10X of multiple. The stock still cheap, despite the recent runs. I may add a bit more here this morning.

CAPITUATION?

The market looks bad, despite some encouraging news from Iraq. Emerging markets were down more than 3%, Europe down 2% and Japan down almost 4%. Future is all red. Is today the capituation? Watch for the hard sell-off with volume and reversal.

SUMMER DAYS

A slightly higher future market, a fade, a bounce at 10:00 am, a direction-less tape for most of the day, a bit of sell-off after lunch, and finally fall apart. Yah, a typical summer stock market. It's certain not fun, not to mention the great weather outside. Despite the decline, I am not too concerned about the most recent positions added. Better to buy here than sell and longer it falls, hard it rebounces. Moreover, my cash position is still well over 25%, which will provide me with a lot of flexibility. I just have to hold my emotion in line and remain positive.

FADE COMING?

"A TEST OF BEING A LEADER IS TO RECOGNIZE A PROBLEM BEFORE IT BECOMES A DISASTER"

Future market is ticking up a bit. Is there another fade coming? Most likely. That's the current market mentality, which will not change until we see some meaningful capituation.

ADDING, BUT NOT AGGRESSIVELY

I opened a small position of CRDN here in this sell-off. I am probably early, but the sell-off is pretty strong and gethering strength, and valuation is becoming compelling. CRDN just upped its 2006 and 2007 guidance and it has fallen quite a bit. It is currently traded at about 10X of its 07EPS estimate. It has showed some strength in the past few sessions despite the severe sell-off and is currently moving against its 200 SMA. If it could overcome this resisitence, it could go up for another 5-10 points.

SENTIMENT TOO NEGATIVE

The market continues to show weakness, but there appears to have some pockets of strengths. The sentiment is so negative that it could bounce a bit here. HOM is very weak in the last few sessions, and today, probably in sympathy with negative calls on the home builders. I bought a bit here. This stock is very volatile and could go down a bit further, but could also bounce hard. Tight stop loss. (Stopped out).

I also added some SXC, which announced its plan to listed on NASDAQ. The stock fell hard, unwarranted, in my view.

PAIN

Man, that was PAIN, PAIN, PAIN. I think that's all the energy I have left after a long and painful day!

JUST-IN-TIME

Just as I featured CHTT in the weekend, a downgrade is coming this morning and taking the stock down. One of the reason that I kind of like this one, other than the factors mentioned in the previous post is that sentiment is so negative on this stock, among a few analysts covering this name. I continue to like this name and the downgrade only makes it more attractive in front of its next quarter results. I would like to open a small position here.

WEEKEND FEATURE

"NO ACTION IS A DECISION"

Is it time to pick up some CHTT yet? CHTT will grow its revenues by 20%, and EPS by 16% this year, and probably in 07 as well. It had a great Q1/06 and visibility for Q2 and the balance of the year is strong. The company has a decent balance sheet with a manageable level of debt. It is healthcare/consumer sector, and probably can handle both a soft- or a hard-landing. Valuation has become compelling as it has declined significant from its high of $47 to current $35, resulting in a forward P/E of 13 times, for a company growing its earnings by at least 15% for the next couple of years. It continues to reproaches its shares and dido the insiders, both of which purchased at $36-$37 level. There is a rather large short interest out there and could lead the share much higher with some catalyst, or assistance from the macro factors. Definitely on the buying list.

SELL HIGH?

"TO ANTICIPATE IS TO LEAD; TO REACT IS TO FOLLOW"

The future market appears to be strong with the low job number and tech seems in the mojo in the last couple of days. In the day like this, while leaning towards positive, it is important not to get too excited. It is quite likely that a lot of pros will sell high today in front of the weekend. However, I believe the job number and the economic news in the last few days have gone a long way to alleviate a lots of concerns in the market place and in the near term the market probably will lean towards moving up, pros traders notwithstanding. Therefore, selectively adding some names may not be a bad idea.

RISKY INVESTMENT

"TO THINK AS A MAN OF ACTION; TO ACT AS A MAN OF THOUGHT"

Commodities are down hard and market is up, although rather timid. I am out most of the day and not prepared to do too much. However, I added some COM.TO here. I believe this RTF letter from FDA represents a pretty good opportunity and I can see it going up to $12-$13 level in the next few months, without meaningful good news, as long as it refiles its NDA in a reasonable timely fashion. Having said that this is a rather risk investment (single drug, not yet approved, small cap), and I am prepared to trim it down a bit once it reaches $12 level.

HOM stopped out this morning. It remains on the watch list and I would like to add it back sometime in the future.