Inside Straight - March 2, 2005

Stock: MCDT
Insider Buy Posted at SEC Analytics: 11:02am
Price Available at Time of Posting: $3.60
Closing Price: $4.03
Intra-day Return: 12%

Stock: CTLM
Insider Buy Posted at SEC Analytics: 2:15pm
Price Available at Time of Posting: $2.00
Closing Price: $2.15
Intra-day Return: 7.5%

Not All Insider Buys Are Created Equal

On February 11, 2005, a Director of Edgar Online bought $27K worth of EDGR on the open market for about $1.41 a share. Two days earlier this Director bought about $2K worth of EDGR for $1.33 a share.

Nothing to write a blog about?

By Valentine's day, the stock was up to $1.75, a tidy 20% move. A week later $2.33. By February 28th, the stock closed at $2.45. Yesterday, March 1, it touched $2.70. Today, EDGR is running, opening at $2.65 and has printed as high as $3.49.

True to my system, I was in and out of EDGR on February 11th, for about a 4% daytrade gain. The other 150% or so of gain was left on the table. There's a lesson here.

If anyone knows what that lesson is, please comment.

Wake-up, Maggie

Wake up Maggie I think I got something to say to you
It's late September and I really should be back at school
I know I keep you amused but I feel I'm being used
Oh Maggie I couldn't have tried any more
You lured me away from home just to save you from being alone
You stole my heart and that's what really hurt

"Where you been, Allan?"

Here, just like you.

"Why no blogs?"

Nothing to say.

"Oh."

Really, what can you say about the market. Qualcomm under 35? When was the last time you saw anyone without a cellphone being held up to their ear? QCOM was up $1.35 today, breaking the downtrend from it's high at 45 in December. New highs coming? Walk through an airport.

Apple, Google, Yahoo, Sirius, Ebay. New world order. Oh yea, Merck. Paying out a 5% dividend. Relative to T-Bills, historically THE time to Buy MRK. Look it up.

All I needed was a friend to lend a guiding hand
But you turned into a lover and
mother what a lover, you wore me out
All you did was wreck my bed
and in the morning kick me in the head
Oh Maggie I couldn't have tried anymore
You lured me away from home 'cause you didn't want to be alone
You stole my heart I couldn't leave you if I tried

What's next?

I-Buy: CRUS

This morning, SEC Analytics reported the purchase of $97,000 worth of Cirrus Logic stock on the open market by John J. Paulos, VP and GM, Industrial Products. A single digit tech stock (CRUS @ $5.10) with significant insider buying is about as good as it gets in trading I-Buys. We're in.

Back

Took a little break from posting while the market used January to correct the Fall, 2004 rally. My Outlook 2005 is still intact, I expect an up year, so any consolidation is a good time to add to positions. Today I added to my longer term position in QCOM, as it's about 20% off it's highs of December and is the chief beneficiary of the cell phone mania across the globe, including but not limited to China.

WIND Trade

BUY WIND avg price $11.52
SELL WIND avg price $12.04

Time in market = 35 minutes.

WIND

Same source, same story, only this time a Director bought $3M worth of Wind River Systems (WIND) at an average price of $11.18 a share. WIND, trading at about $11.55 as I type this, is down from a high of $14.77 just before Thanksgiving.

PANL

Continuing with our Insider buying theme from Monday, just minutes ago SEC Analytics posted yet another Insider buy transaction for PANL. Same Director, this time buying $80K worth of stock between $8.13 and $8.18 per share. That's over $200K worth of stock bought on the open market for this Insider in the past three days.

Insider Trade

At 3:32 PM (ET) today, my insider service, SEC Analytics posted a filing by a Director of Universal Display Company (PANL). This Director bought $124,256 worth of PANL stock on the open market. Noteworthy is the fact that the stock is just off it's 52 week lows, has $1.88 a share in cash, no debt for an $8 stock and it's in a hot technology sector, OLED - organic light-emitting diode technologies. This was enough to trigger a Buy for me at an average price of $8.03 a share. PANL closed twenty-eight minutes later at $8.42 a share, about 5% above my purchase price. Not bad for a half-hour's work.

But is that the end of this story? With a strong balance sheet, a hot technology sector and an Insider with a good track record (he last sold PANL shares at $16 a share), this one may be worth holding a few days, or longer.

Outlook 2005

Before I get into my outlook for 2005, it is important to distinguish what I do from what I say. What I do is day-trade the US stock market based on my own proprietary stock trading system. My trades last minutes to hours, generally, although a very small proportion of my strategies do allow for "long term" holds of days to weeks. For the most part, I day-trade and as such, the general direction of the overall market is not a major factor in my trading. In fact, some of my signals are SELL signals, whereby I will short a stock for the requisite 2-4% pop. Some of the very best Insider-Buy signals come as Officers and Directors scoop up cheap shares that the market has totally mispriced. That all said, I do prefer an up market, the pops are easier to come by, but an up market is not an essential factor in what I do.

As for 2005, one's outlook must necessarily fall into one of three general categories, Bullish, Bearish or Agnostic. This last one, Agnostic, covers the "don't know" attitude which ordinarily would serve most investors best. But not this time. I have just finished my second read-through of Harry Dent's, The Next Great Bubble Boom. Dent is expecting that the years 2005-2009 will provide the real bubble in stock market appreciation, using a well documented confluence of Demographic Cycles, Technology Cycles, and Decennial Cycles. It is this latter cycle, the Decennial Cycle that is suggesting a gangbuster year for stocks in 2005, one that will likely send all major indexes into new all time high levels, except for the NASDAQ which might take another year to take out it's 2000 high.

I highly recommend that anyone with money invested or available to invest in the stock market read The Next Great Bubble Boom. You don't have to agree or buy into the premises and bullish conclusions presented by Dent in the book, but you need to at least be aware of this bullish argument so that if the markets unfold in the manner suggested, you will at least know why and maybe be able to participate accordingly.

The case for the Decennial Cycle and a bullish 2005 is compelling. To greatly simplify and summarize Dent's findings, going back 100 years, almost all the positive returns and gains in the US stock market are made in the second half of each decade. To quote Dent, "The Decennial Cycle basically says that you would never have lost money in the second half of any decade in the last 100 years and that the lion's share of gains were made in the second half." But Dent goes on to point out that of the last five years of every decade, it is the 5th year that stands out far and above any other year as producing the most consistent and powerful positive returns.

I am not doing justice to Dent's argument, because he adds the effect of demographics, spending cycles and presidential cycles to create a persuasive confluence of evidence suggesting a powerful rally in the months and year ahead. This is not a guarantee of a bullish 2005, but it does present a compelling reason to expect an up year and probably a big up year.

There is always uncertainty in the market and of course, always the possibility of some exogenous event to make this time different. But the opportunity is there for all to accept, reject, ignore or embrace as the year ahead unfolds. I think it's going to be a fun year.