Tuesday, February 26, 2008
SNDA, the market and JRJC
First, congratulations to all who bought shares of SNDA Tuesday morning on our time sensitive recommendation. We did stress buying ahead of the Institutional money at 10:00AM, and there was actually one 3% pull back in the intra day chart as predicted. SNDA traded as low as $31.75 and as high as $35.00. Moves of 10% or more in a single day are rare, but we use the Psychology of the Call to indentify such potential moves. SNDA shrugged off the worst inflationary data since 1981 in the early going and Institutional money flow was steady into the close. Shanda traded nearly 3.6M shares, over 3.5X the average daily volume. The folks over at "Motley Fool" mentioned SNDA at 11:38AM EST in a positive article, but our readers bought before the article appeared. SNDA has been upgraded by many analysts, as we predicted. Volume, money flow, and the daily close of $34.70 all confirmed the incredibly positive tone on the conference call. Goldman Sachs increased their price target for Shanda to $41.00! And there you have the power of interpreting the Psychology of the Call correctly. We believe strongly that SNDA will break to new 52 week highs barring any unforeseen events, one being the over all market re-testing its January lows. We remain bearish on the market overall with Bernanke testifying tomorrow and Thursday to a mostly Democratic Congress. In this election year Bernanke will suffer increased scrutiny and grilling by the Democrats, therefore we urge caution with all long equity positions into Friday. Poor Bernanke isn’t responsible for the weak U.S. Stock Market, or the foundational crack in the U.S. Real Estate Banking & Mortgage market. Market cycles are caused by long term trends of supply and demand, not by a particular Presidential Administration or a lone Fed Chairman. That having been said, we can point a finger of blame at Alan Greenspan. His lowering of the Fed Funds rate down to 1.25% caused what we coin "irrational speculation" in the mortgage and real estate markets. Sadly Greenspan predicted the stock market bubble with his "irrational exuberance" phrase, but he didn’t foresee the mortgage/credit bubble that we’re suffering. Everyone making money speculating in Real Estate a few years ago was a dangerous trend that we would eventually have to pay for. The multiple credit market shocks have only eroded equity side psychology and the wounds won't heal tomorrow. The cheap money bubble (low rates) created by the Greenspan Fed is still playing out; yet Greenspan is still being quoted like some mythical Greek god. Rest assured: the Bond market is an extremely important animal that we follow around very closely, giving our readers a hidden edge that most financial sites miss. The stock market or credit/mortgage correction isn’t over just yet. Look for more sideways action in the S&P Index (minimum of 2 months), or a test of the previous low of 1270 printed on January 23. Don’t commit more than 50% of capital to the equity market until one of the two scenarios unfolds. As for our next pick based on the Psychology of the Call, we see potential in shorting China Finance Online ahead of earnings this Thursday. We have multiple reasons to believe JRJC will implode after they give clouded guidance. JRJC is operating a useless subscription model in an imploding Chinese stock market. Ironically, JRJC relies on a strong stock market for its only source of revenue. JRJC gets a letter grade of F and a percentage of 46%, making it a definite short side opportunity for our followers. So there are convincing opportunities at times, both short and long. SNDA is one we have scrutinized closely and recommend buying. The tone of the conference call had many tells that convinced our thesis that 52 week highs are around the corner. We’ll follow up with more analysis on SNDA on Wednesday March 5th, and we’ll have more on JRJC tomorrow. Until then, happy trading, and remember, the Psychology of the Call matters.
Posted by The Call Team at 7:57 PM