Saturday, March 11, 2006

Weekly Review (3/6/06-3/10/06)

“Hi, the Market Read Your Blog!”

A colleague of mime said to me when we looked together at GOOG's chart during the lunch time today. Just as I said on my yesterday’s article, there was a resistant at $340. Google’s price was quickly dropped to $335 and then bounced back to $345. Because of the power of the down trend, the resistant did not take too long and the price was pushed back to $335. If we checked the chart, we can see the up and down forces were straggling for their directions.

From today’s volume, we can see the down power is strong still. Because there was a small back before closing, there is a small possibility that the up power seek for coming back to $340 though. Let’s watch it closely on Monday.

NYX seems read my article too. It looks like had a very good breakfast, but forgot the lunch! It quickly climbed to $88 in the morning, but then felled off in the afternoon.

I checked the news and wanted to find out its reason but could not. It mostly like a technical sell off. Today, it seems like getting support at $75. The down power seems stronger then the up’s still.

“Is the Wall Street not greedy anymore?” --- I asked myself. “Are the seat owners got out already?” --- I asked myself again. I am not sure about the first answer, but I am absolutely know the second. The seat owners are holding 110 millions (1366 * 80717 = 110,259,422) shares. The total volume of the past 3 days is less than 50 millions.

If you have shares on your hands, why do you need to worry about it? Let the big players do it; if you don't have yet, why can’t you give yourself the honor to sit besides them? (At a reasonable lower price, of course).

Because my reasons for up or down are 50:50, I cannot give you a clear short term direction at this time.

“The best reader award goes to…”--- “NASDAQ.”

If I have an Oscar, I would give it to NASDAQ without hesitation. The market really read my minds! When I wrote my paper, its closing price was $38.56; today it is $43.56. There is a $5 or 12.97% increase in two days. I am

If a guy proposed to a girl and got rejected, would other people treat him as a hero and give him some bonus?

But it is what exactly happened on NASDAQ today!

The news is: The London Stock Exchange received and rejected a $4.2 billion takeover approach from the NASDAQ Stock Market Inc. This news drove the price of NDAQ up $4.06 or 10.28% to $43.56.

What can you say? “Are you crazy?” --- “No, of course not. It is the market!”

Another interesting thing you have to pay attention is the LSE’s statement: "The Board of London Stock Exchange firmly believes that the proposal, which represents only a 8 percent premium to the current market price, substantially undervalues the company, its unique position and the very significant synergies that would be achievable from the combination of London Stock Exchange with any major exchange group,"

Let me translate it to another way: The market value of LSE, which its board believes, is 4.2/0.08 = 52.5 billions.

Please refer to my article about the value of NYSE and NASDAQ. As of today, I calculated myself again, the value of NYSE is 11.78 billions; the value of NASDAQ is 3.57 billions.

So, what do you think?

For NDAQ, my analysis shows that there would be a resistant at $46.5. Its near term high is $50.

For this week, my projections seem work very well. It does not means I will be all correct going forward. I tried to provide very clear guidance to my readers, but you all know that it is harder and riskier, sometimes it is simply impossible. Many factors are far beyond our control. So when you doing your own investment, you have to watch the market closely and try to catch some signals as early as possible. And, the most important point is Taking Your Action.

Thank you for your time!

Friday, March 10, 2006

Invest on the Future

Hi Google!

About one year ago, when GOOG (Google Inc.) was at $180, I talked to some friends that it was the time to buy. Very few people took the action, but I heard one of them received a good harvest. The story was spred in a small circle. It made my name was recognized by someone whom I did not know at a conference. While, the lucky prediction for GOOG really brings me some good feelings.

After GOOG crossed $350 line, I hardly paid attention to it. The first time I looked it seriously was when it dropped to $400 at the first time. I began to talk to friends about its web advertisement and compare it to the new MSN. As more complains from web site owners I heard, I lost more my confidence on it.

If we open up for Google at Yahoo Finance, we can see its 1 year target is $476.31. I don’t know how analysts could calculate this number with 2 digits after decimal point, but I do know that the number is based on the estimated future earning. So now the question is “Can Google keeps its revenue growth rate?” or “How could Google make their revenue growing?”

Today, Google’s P/E is at 68.31. To keep the current price at such ratio, the company has to have a bright future, a big promise and a big growing potential. We all know that the major revenue resource of Google is its web ads. At current market, with strong competitor such as Microsoft MSN and Yahoo, It is reasonable to doubt its potential. According to the recent news, its CFO admired, Google is slowing down.

I talked to a friend who owns a web site and has deep understanding on the web advertisement. According to him, many small advertisers may not benefit from their web ad or not satisfied with the services. It means Google is loosing customer and revenue.

Today, Google agreed to pay up to $90 million to settle a "click fraud" lawsuit. Compare with its revenue, $90 million is a small number, but the psychological impact is big. Would there be another one?

One thing caught my eyes also. Google’s CEO and CFO have sold some shares recently. If there is no other explanation, I would consider it as a negative sign.

My discussion above has leaded us to almost conclude that: the Google will keep going down. But wait, Google has the power to turn the down trend up. It has a good balance sheet and 8 billions cash. There are many ways to affect the market. The easiest way to change the stock price is to buy back shares. The 8 billions can change the price a lot.

Today, its closing price is $343. From technical point of view, tomorrow is a key day. The first resistant point is about $340. If the price crossed $340, it will toward to the next point which is $300; if it can get support from it, there will be a bounce.

On either situation, I think the next two days are good entering point for short term players.

Without concern the big cash, I would say Google is on its down trend. Based on its fundamentals, Google’s reasonable price should be $250.

There is another factor that I am not clear yet. GOOG’s institution holder’s ratio is only 37.9%. I don’t believe regular people can own a lot of it. So who does own the rest? What would their pattern of behaves be?

With the extra concerns and uncertainties, I am hesitated to provide a clear direction.

I encourage you to read the incoming quarterly report, probably the next quarter too, and pay attention on the revenue. No matter what, it is the key to determine the future of Google.

Wednesday, March 08, 2006

Investment on Value?

NYX (NYSE Group Inc.) and NDAQ (NASDAQ Stock Market, Inc)

Today is a big day for NYSE or New York Stock Exchange. It transformed itself from a not-for-profit exchange to a public company after about 214 years since establishing. Its stock jumped from 67 at open to 80 at close. Its market capitalization is about 12.64 billions as of today.

Meanwhile, the market capitalization of NASDAQ Stock Exchange is about 3.16 billions as of today. There are another two exchanges: Chicago Mercantile Exchange Holdings Inc. (CME) has a $14.5 billion cap and CBOT Holdings Inc. (BOT), the Chicago Board of Trade, has a $6.2 billion cap.

What can we see from those numbers?

This morning, when NYX’s price was about 70, I called a friend and told him to take action immediately. The reason I did so was simply because the following 3 points:

1. Usually, a stock would be well shinned at its IPO. It is very reasonable, perhaps more reasons, that NYX should not be the exception.
2. Each of the 1366 seat owners on NYSE has 80,717 shares of this stock. Those giant players would not let their wealthy devaluated before taking a profit.
3. The NYSE acquainted Archipelago Holdings Inc. for 10 billions. (This price for Archipelago might be little higher, but it is the “market price”). Based on the current price, we can simply find the value of NYSE = 12.6 billions – 10 billions = 2.6 billions. If CME could worth 14.5 billions and CBOT could worth 6.2 billions, don’t you think NYSE should worth 2.6 billions?

The new NYX owns exchange at both East and West coast now, and the Archipelago is the leading ECN. You probably won’t see a different soon because of the cost of merging, but you should definitely keep an eye on it to check the further development.

The NASDAQ is the second after NYSE. It seems waking up. Its price has jumped from 10 to 40 in the past 12 months. Today, its closing price is 38.56. But still, all other public exchanges own times higher market value than it. So, if NYX keeping up, what do you think of NDAQ?

I have to remind that all the tickers I mentioned above have relatively high P/E ratio. For long term investment, it is a negative sign.

Beginning from last December, I believe those exchanges have made decent moneys because of the increase of the volumes.

For short term player, there are chances, especially before the announcement of earning.

For short term only, my suggestion is

1. NDAQ: Buy
2. NYX: Buy

Wish you all good luck!

Straddle and ELN

Straddle is an option trading strategy that investor buy both call and put at the same strike price and expiration date. If the investor believes the stock price would move significantly, but not sure at which direction, the straddle is a good way to pursue.

ELN (Elan Corp. plc) is Biopharmaceuticals company. On March 7, 2006 and March 8, 2006, the FDA is going to review and make decision on whether allow Tysabri, which is Elan’s drug, to return to the market.

The final decision of FDA is unknown, but one thing is for sure that once the result came out, the price of ELN would be either jump or drop. It is a very good candidate for straddle.

ELN’s current price is 12.70. My analysis shows that if we follow the standard strategy, the cost is relative high, so the margin would be reduced and the risk is higher. For example for strike price 12.50 expiration date at April, 2006, both call and put would cost 4.05.

I calculated several combinations. One of the better combinations is buying:
1. Call at strike price 15, expiration date April, 2006
2. Put at strike price 10, expiration date April, 2006
This combination would cost around 2.05. Its max risk is loosing 10%, but has reasonable potential gain >80%.

The following is my detailed analysis about this approach. It was made on last Thursday and “current price” was set as 13.

When the FDA news came out, you should sell the option that against the trend immediately, and hold another one for better margin.

Good luck to who adopt this strategy!