You Need to Get Your Head Examined If You Own HP or Intel Shares

Do any of these names ring a bell? Amiga, Commodore, Wang, Kaypro, Tandy, Gateway, DEC, Packard Bell, and Sperry.

Those were pioneers of the personal-computer industry, and all of them are now defunct.

My first computer was a Commodore 64. I don’t remember how much I paid for it (it wasn’t cheap, and I didn’t have a lot of money at the time), but I do remember that I thought it was the most amazing piece of technology I’d ever seen.

The personal-computer industry has gone through a lot of changes and while PCs still are amazing pieces of technology, the economics of the PC industry are again going through a dynamic change that may fill up the PC graveyard with some new casualties.

What am I talking about? Connect these dots and tell me what you think they say about the PC business.

•  June 25: Micron misses forecasts and issues weak forward guidance.
•  July 6: Advanced Micro Devices hits multi-year low after issuing warning.
•  July 9: QLogic warns Wall Street to expect disappointing Q2 results.

All those companies are part of the PC food chain, and all of them are suffering from a protracted sales slump because the Internet and the ascent of the smartphone have made the PC largely obsolete.

The real proof is in the numbers. Market research firm International Data Corporation (IDC) just released its Worldwide Quarterly PC Tracker report, which showed that the world bought 66.1 million PCs, a 11.8% decline over the last year.

That was, by the way, about 1% worse than Wall Street was expecting.

Another computer watchdog, Gartner Inc., was slightly more optimistic by reporting a 9.5% year-over-year decline.

By the way, Apple shareholders will be happy to hear that Apple was the onlypersonal computer in the world that showed improving sales with a 16.1% year-over-year increase.

Apple can thank me; I bought three MacBooks in the last year for college-aged children.

Even with that increase, Apple is only the fourth-largest PC maker in the world. What about the rest of the PC club?

• Would it surprise you to learn that Lenovo—not Dell or Hewlett Packard—is the largest computer company in the world? Lenovo sold 13.4 million computers in the last year, largely because of its booming business in Asia.
• Hewlett Packard is number two for market share, but it has suffered a 10.4% year-over-year sales drop. US sales were down by 7%.
• Dell is #3 at 9.5 million computers and saw its sales fall by 8.7%.
• Acer and ASUS were tied for fifth at approximately 4.3 million computer sales each.

What you have is a handful of formerly powerful and profitable computer companies beating the crap out of each other for an ever-shrinking pie.

The reason is the switch to mobile devices as the dominant computing platform.

I’ve been warning about the PC’s slow demise for years, but I was far from the first.

Just a couple of months after the release of the iPad, Steve Jobs predicted that tablets would overtake PCs.

He was dead on. Gartner estimates that 2015 will be the first year that tablets outsell PCs: 320 million tablets versus 316 million PCs (desktops and laptops).

All the major Internet players—like Google, Amazon, and Facebook—are adjusting their business plans to focus on mobile computing. Google, for example, has tweaked its search engine to prioritize mobile-friendly sites.

And that’s why the other parts of the PC food chain are reporting disappointing results.

Source: PC World

Micron, the big PC memory maker, just reported quarterly sales of $3.85 billion, way short of Wall Street’s overly optimistic expectations for $3.9 billion.

Micron’s profits came in at $0.43 per share, woefully short of the $0.57 Wall Street pipe dream.

Worse yet, Micron lowered revenue forecasts for the next quarter to between $3.45 and $3.7 billion, way below previous estimates for $4.16 billion.

No wonder that Micron shares were down 31% for the first half of 2015 and down 24% over the last 12 months.

The most PC-dependent company of them all is Intel, which has already confessed that weakening demand for PCs caused it to lower its forward guidance.

I shouldn’t pick on Intel because lots of other parts of the PC food chain are in big trouble, but I believe it is the biggest ticking time bomb in the computer world.

And if you own it… you should get your head examined because it is headed a lot lower.

Instead of letting dying technologies bleed your portfolio dry, I recommend you focus on up-and-coming blockbusters in the tech sector. Like lithium-ion batteries, without which smartphones, tablets, electric cars, and many other new breakthroughs wouldn’t exist. I expect one lithium producer in particular to do great for our Yield Shark portfolio.

Tony Sagami

subscribers@mauldineconomics.com

Available Mon- Friday after 6:00 P.M. Eastern, 3:00 Pacific.

DOW                                               + 14 on 1,100 net declines

NASDAQ COMP                                + 9 on 1,050 net declines

SHORT TERM TREND                        Bullish  

INTERMEDIATE TERM TREND            Bullish

STOCKS: The averages were higher on Monday. Better than expected earnings reports and a receding crisis with Greece got the credit.

But, for the second session in a row, the markets rallied on poor internals. This normally is not a good sign, especially when you consider that the S&P 500 is at a resistance zone. See the chart below.

GOLD:  Gold was clobbered for $35. Rumors about Chinese bank selling. Greenback up again.    

NEXT DAY: Tuesday. No prediction

CHART:  The S&P 500 is fast approaching the peak of mid may, but the advance decline line is nowhere close (arrows). Also, the last two days have been atrocious. This doesn’t guarantee a decline, especially since earnings have been pretty good, but it makes us want to take profits on our trading profits.

BOTTOM LINE:  (Trading)

Our intermediate term system is on a buy. We are long the SPY from  206.42. If there are more declines than advances at 3:45 EST, sell at the close.

   System 7   We sold the SSO at 68.66 for a gain of 2.96. Stay in cash on Tuesday.                           

   System 8   We are in cash. Stay there.                    

GOLD  We are in cash. Stay there.     

News and fundamentals:  There were no important economic releases on Monday and there will be none on Tuesday.

Interesting Stuff  Gold and silver keep getting clobbered. Gold has been declining for 4 years. Silver even more. But, we still see TV advertisements urging people to buy gold and silver. When these ads stop, perhaps we’ll get a bottom.

TORONTO EXCHAN GE:   Toronto got clobbered for 217 points.     

S&P/TSX VENTURE COMP: The TSX dropped 12.       

BONDS:  Bonds fell back slightly.                                                        

THE REST:  The dollar keeps moving higher. Silver  and crude oil were whacked pretty hard.              

We’re on a buy for bonds as of June 11.                      

We’re on a buy for the dollar and a sell for the euro as of July 16.                         

We’re on a sell for gold as of  July 2.                         

We’re on a sell for silver as of June 23.                        

We’re on a sell for crude oil as of July 16.                             

We’re on a sell for the Toronto Stock Exchange as of May 6.    

We’re on a sell for the S&P\TSX Venture Fund as of October 30, 2014.    

We are on a long term buy signal for the markets of the U.S., Canada, Britain, Germany and France.  

Stock Features of the Week – Abnormal Breaks
Strong price trends usually start with abnormal price moves with abnormal volume. There is a significant change in fundamentals, the people who follow the company closely react by buying aggressively and start the stock moving higher. As more people learn about the change in fundamentals, more people buy and the stock goes in to an upward trend.

Today, I ran a scan for Abnormal Movers and then inspected the charts for signs that investors were surprised by the move. Here is one stock that is worth checking out:

1. SCON
SCON has been quietly moving sideways for a couple of months but is coming alive today with abnormal volume and price action. This is breaking the downward trend line and could be the start of a rebound for the stock. Support at $0.98.

Here is the rest of Tyler’s weekly newsletter titled:

Return on Capital
Stockscores.com Perspectives for the week ending July 20, 2015

In this week’s issue:

• Weekly Commentary
• Strategy of the Week
• Stocks That Meet The Featured Strategy

In This Week’s Issue:

– Stockscores’ Market Minutes Video – Pull Backs to Trend Lines
– Stockscores Trader Training – Return on Capital
– Stock Features of the Week – Abnormal Breaks

Stockscores Market Minutes Video – Pull Backs to Trend Lines
Opportunities arise when myopic traders sell on weakness to take prices back to the long term upward trend line. Learn that plus Tyler’s regular weekly market analysis with this week’s Market Minutes..Click Here to Watch

Trader Training – Return On Capital
A Stockscores user asked me a question that I think many people have, “If you have more trade opportunities than capital, how do you pick which trades to take?”

The short and simple answer is to take the trades that give you the most bang for your buck. Let me explain.

We size our trade positions based on the risk of the trade. The risk of the trade is the difference between the entry price and the stop loss price. Divide the risk in to your risk tolerance amount and you have the number of shares you can buy.

Consider two trade possibilities, each with strong charts that show the same potential for price appreciation. The first has an entry price of $5 with support, and therefore our stop loss point, at $4.50. That means there is $0.50 of downside, or the potential for a 10% drawdown.

The second trade has an entry price of $20 with a $19 support price and stop loss point. On this trade, if wrong, we stand to lose $1 per share or 5% drawdown, since $1/$20 is 5%.

If we are willing to risk $500 on each trade, we will buy 1000 shares of the $5 stock for a total cost of $5,000 and 500 shares of the $20 stock for a total cost of $10,000. Each trade has the same amount of risk but the second trade requires more capital because the stock is less volatile. That also means the expectation for percentage gain on the second position is also less. The price volatility on the entry signal is a good predictor of what price volatility will be in the trend.

Clearly, the first trade gives more bang for the buck. We can use less capital for the same profit potential. We may believe both trades have the potential to make $1000 but the first trade will do it with half as much money invested. For a trader with limited capital, the first trade is the one to take.

Generally, lower priced stocks will be more volatile on a percentage basis, making them a source of greater percentage gain potential. You can place less capital in to a low priced stock to get the same dollar upside as a higher priced stock trade.

I did a quick survey of this week’s best gainers to confirm this fact. I ranked the 2000 most actively traded stocks in the US last week by percentage gain and focused on the top 20 gainers. Of the top 20, 17 were under $10. The other 3 were under $20.

The lesson here is to focus on lower priced stocks if you have less capital to trade with. Many will argue that these lower priced stocks are riskier and maybe dangerous for a risk averse trader. They are actually not riskier, they are more volatile. That means you have to take a smaller position size in them so that the risk of the trade does not exceed your risk tolerance.

By adjusting position size based on the difference between the entry price and stop loss price, you can make every stock trade have the same amount of risk. If the stock is volatile buy less. If your amount of capital is insufficient for all the trades you find, focus on the lower priced stocks.

There is one caveat to this style of risk management. Lower priced stocks tend to have an added element of risk because they have a greater potential for price gaps. Lower priced stocks tend to have less established or diversified businesses which means a problem with one of their businesses can have a major impact on share price. It is much easier for a small Biotech stock to gap down 30% on bad news than it is for Pfizer to. That means the low priced stocks you trade could blow through your stop loss point if bad news brings a big price gap.

That makes it important to not put all of your capital in to just a few low priced stocks. If you are going to focus on relatively cheap stocks then you must own a number of them so that a larger than expected loss on one of them does not bring your portfolio performance down significantly.

If you have less capital to trade with than what you would like, focus on the lower priced stocks. You can adjust your Stockscores Market Scans to include a price filter for stocks under $10 or even lower if you like. Just remember to size your positions based on the volatility of the stock, the difference between the entry price and support on the chart, where you will put your loss limit. By doing that, you can match the risk of the trade to your risk tolerance and use less capital to gather the same dollar profit potential.

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References

• Get the Stockscore on any of over 20,000 North American stocks.
• Background on the theories used by Stockscores.
• Strategies that can help you find new opportunities.
• Scan the market using extensive filter criteria.
• Build a portfolio of stocks and view a slide show of their charts.
• See which sectors are leading the market, and their components.

  Disclaimer
  This is not an investment advisory, and should not be used to make investment decisions. Information in Stockscores Perspectives is often opinionated and should be considered for information purposes only. No stock exchange anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. The writers and editors of Perspectives may have positions in the stocks discussed above and may trade in the stocks mentioned. Don’t consider buying or selling any stock without conducting your own due diligence.

Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,140, and profit target at 1,980, S&P 500 index)

Our intraday outlook is bearish, and our short-term outlook is bearish:

Intraday outlook (next 24 hours): bearish
Short-term outlook (next 1-2 weeks): bearish
Medium-term outlook (next 1-3 months): neutral
Long-term outlook (next year): bullish

The U.S. stock market indexes were mixed between -0.2% and 1.5% on Friday, as investors reacted to quarterly corporate earnings releases, economic data announcements. The S&P 500 index remains close to its late May all-time high of 2,134.72. The nearest important level of resistance is at around 2,130-2,135. On the other hand, support level is at 2,115-2,120, marked by previous resistance level. There have been no confirmed negative signals so far, however, we can see negative technical divergences:

Larger Image

Expectations before the opening of today’s trading session are slightly positive, with index futures currently up 0.2%. The main European stock market indexes have gained 0.4-1.1% so far. Investors will now wait for further corporate earnings releases. The S&P 500 futures contract (CFD) trades within an intraday uptrend, as it breaks above the level of 2,120. The nearest important level of support is at around 2,115-2,120, marked by last week’s consolidation, as the 15-minute chart shows:

Larger Image

The technology Nasdaq 100 futures contract (CFD) follows a similar path, as it reaches new all-time highs. The nearest important level of support is at around 4,650, as we can see on the 15-minute chart:

Larger Image

Concluding, the broad stock market extended its short-term fluctuations on Friday, as investors reacted to quarterly earnings releases. There have been no confirmed negative signals so far. However, we continue to maintain our speculative short position (2,098.27, S&P 500 index), as we expect a medium-term downward correction or an uptrend reversal. Stop-loss is at 2,140, and potential profit target is at 1,980. You can trade S&P 500 index using futures contracts (S&P 500 futures contract – SP, E-mini S&P 500 futures contract – ES) or an ETF like the SPDR S&P 500 ETF – SPY. It is always important to set some exit price level in case some events cause the price to move in the unlikely direction. Having safety measures in place helps limit potential losses while letting the gains grow.

Thank you.

“As of a week ago, the U.S. market became very oversold,” Faber said. “It’s rebounding, but in my view, we’re not going to see any new highs.”

Chinese Economy hardly Growing , Do Not Buy any Chinese Stocks at The moment

We have now hard evidence that the Chinese economy is hardly growing at the present time,””If China slows down, the demand for industrial commodities goes down. It affects all the resource producers: Argentina, Brazil, the Middle East, Central Asia, Africa, Australia,” Faber said Monday. “That can have a huge impact on the global economy.””It’s still a fragile situation,” he added, urging Americans to avoid the temptation to buy Chinese stocks despite government measures to bolster investor confidence. “I don’t think that Chinese stocks are attractive and I would just stand aside.” “We just heard from the Australian treasurer that growth this year in China will be 6.75 percent. It’s a pipe dream that will never materialize. Maybe that will be published by the government but the reality is that Chinese growth has slowed down to trickle,” he said.

More from Marc Faber HERE