Friday, February 29, 2008

JRJC Update

We asked our readers to hold on to their short positions if JRJC: closed below $21.28. It closed at $21.22. We retain our confidence that the fundamentals and the Psychology of the Call will prevail.

Coming Saturday: Market Psychology and Elections

The outcome of the Presidential Election in November presents a mixed bag of investment scenarios for investors. Tomorrow we will analyze the ramifications of the election with regard to how the result will push certain sectors up and other sectors down. Stay tuned for the best and worst possible scenarios for investors.

Market Insight and JRJC Commentary

Firstly, we want to affirm our bearish stance on the stock market. The Employment report on March 7th will bring more losses to investors and we see the 1,270 S&P level being tested. We urge you to be patient with new money at this point in time. We recommend our readers hold their short position in JRJC unless it closes above $21.28. Anything above that price target would break our Commandment of maximum loss from the $18.50 point and we always obey the 11 Commandments. Best Regards from Psychology of the Call team.

Thursday, February 28, 2008

The Psychology of the Call for JRJC Q4 2007

Psychology of the Call hates when management avoids the truth and opts for buzz words. JRJC is guilty. The CFO's delivery was very defensive and more nervous than we prefer. CFO shrugged off the Chinese market melt down as "volatility" at least 2 times, not the transparency we appreciate. Investors know the Shanghai has fallen from 6,100 to approx 4,350 today, which points to a bear market more than simple volatility. Besides missing the high end of Q4 guidance, JRJC failed to guide up for the next Q. They’re estimating revenues to come in at $10.5M on the high end, where the previous high estimate pegged them at $10.7M, a red flag. We never recommend buying small cap ADRs that do not exceed estimates, never ever, period. JRJC's SG&A costs (selling, general, and administrative) are troubling. A subscription business model cannot be successful in the long run with such ballooning expenses/costs. Management tried to explain this away as "bonuses" to telemarketers, but we don't buy it and we urge our readers not to either. We see JRJC's future being crippled by higher operating costs through out 2008 and beyond. Sarbanes Oxley is not going away unless Ron Paul wins the election and the chance of that happening is near zero. Lastly, we view the Chinese Telecom deal as a negative development. Larger, better capitalized portals like BIDU could announce similar financial services for free tomorrow, causing over night insolvency. Is it possible JRJC's management is privy to a large portal planning to offer free financial information? Please close your eyes and visualize a publicly traded company in your portfolio with no competitive barriers toward entry. Now open your eyes and look at JRJC. Patents and intellectual property matter and JRJC has neither. We reiterate the back end loaded year as a mortal excuse which must be questioned in the face of a falling Chinese market, breaking our 6th Commandment. Brean Murray's analyst changed rating on the shares 3 times in the last 3 months, currently at a buy. We hope Brean Murray scrutinizes JRJC's back end loaded year as wishful thinking in what has become a painful Chinese stock market. We thank you for your time and remember, the Psychology of the Call is always on your side. Next JRJC update March 5th. Please obey the 11 Commandments.. cheers!

JRJC Insight Ahead of the Conference Call

First, congratulations to all who took our advice and shorted shares from $16.00-$18.50. Our high end price of $18.50 was an exact print/hit yesterday; we stand by our call after seeing JRJC's weak quarter and horrendously questionable guidance. "Back ended" is an excuse management mentions and that breaks Commandment #6 (see below); shame on them. Psychology of the Call views the Chinese economic environment as extremely inflationary and negative for any subscription based businesses going forward, especially in light of the 2008 Olympic Games. We advise our readers to gamble in a casino (Las Vegas, Monaco, or Macau) sooner than buy a single share of JRJC. Our conviction has never been stronger. Thank you for your patience. Awaiting the conference call for further analysis ...

China Finance Online (JRJC) Conference Call

We posted on Wednesday about the potential train wreck that is JRJC, recommending a short position and assigning it a letter grade of F. They reported their earnings this afternoon. We'll have an in-depth analysis of the JRJC conference call (set for 20.00 EST) later this evening. Come back then for the Psychology of the Call.

The ELEVEN Commandments of Trading

The Eleven Commandments of Trading 1. Never trade more than 10% of your total capital/account value in any one position. 2. Cash is King. 3. Cut losses to 15% maximum whenever possible. If your psyche is shaken, step away and don't trade for 1 week 4. Take and enjoy profits of 30% or more. 5. Never fall in love with a stock and never force trades or over trade; remember commandment #2. 6. Never accept excuses from management, period. 7. Use technical and fundamental data & psychology/sentiment from the conference call to select trades. 8. There are two sides to the market, long & short; take advantage of that leverage. 9. Understand the significance of the macro geo-political economic environment. 10. Unforeseen events/shocks will happen, inverting the market upside down (remember commandments #1 & #2) 11. All of the above are void without reading The Psychology of the Call.

The Foundational Crack Revealed: Mass Confusion

Psychology of the Call did finger Alan Greenspan yesterday for causing the "irrational speculation" in the Real Estate/Mortgage market, and today the fall out continues. The Unemployment numbers released this morning are inching up to disastrous levels. Greenspan's lowering of the Fed Funds rate to 1.25% unleashed a steroidal effect across the U.S. economy and now the credit and stock markets are in panic mode. The foundational crack has been revealed and it'll take a lot more than carpenters to fix it. Wall Street prefers the ability to forecast the future, giving them an understanding of what to do with their capital. Wall Street prefers growth orientated momentum on both sides of the accounting ledger, but neither stocks nor bonds feel comfortable here. A good childhood buddy in the Corporate Offices of Goldman Sachs in Manahattan, New York is beginning to question the legitimacy of what is left in the subprime market. The credit spreads are causing bewilderment in the most powerful Wall Street Institutions. Now that we know that, do we advise our readers to buy stocks today? Absolutely NOT! We actually see more lay offs on the horizon at major Wall Street houses, so exhibit caution. We see the "biggest hammer being wielded" in anticipation of the Unemployment Number on March 7. This hammer will not be kind to those who are long stocks and investors should shy away from adding to any positions until after that date. Your Cash Will Be King as you sit and listen to the confused talking heads on CNBC and other for-profit channels. As for Bernanke, the tone of his delivery and the trembling in his voice will only get worse after this morning’s employment data – ugly, ugly, ugly. What is the Fed to do? We’re not Economists and we wouldn’t wish Bernanke's job on Mahmud Ahmadinajad (well, maybe we would). But we urge our readers to sit back and watch the show, with cash and buttered popcorn in hand; don't step in what we see as a deep foundational crack. Happy trading and remember, Psychology of the Call matters.

Wednesday, February 27, 2008

Equity Market Insight for Wednesday

Good afternoon. The equity market continues to struggle as we predicted. Bernanke said nothing new as far as we're concerned at the Psychology of the Call. No doubt the Fed is facing treacherous waters as they try to steer their large vessel of Fed funds. Just what some equity traders fail to understand is that the Fed has absolutely no control over where long term interest rates go, and these are the rates that really matter for analyzing stocks. Even though the equity risk premium is overwhelmingly on the side of stocks at present, the markets fail to rally through certain resistance barriers. This is not good for bulls. The Fed funds rate is simply a rate that Banks charge each other for overnight transactions, nothing more. Still, the Fed funds rate is like the Sun in our Solar system; without it there would be no life and therefore no expansion of credit. Expansion of credit is what eventually creates jobs, increases corporate profits and hopefully stock prices. Stock prices rise and fall based on what investors are willing to pay for a given Dollar of earnings at a given time, or the P/E ratio. P/E ratio's contract or expand with investor sentiment/psychology. Furthermore, many equity investors fail to understand that the credit markets are just one factor that build or destroy P/E ratios. Bonds are a safer asset class to begin with, so why would a seasoned pro buy stocks when the credit/bond markets are suspect? In a free market system supply and demand forces should have free rein. Nonetheless the Fed's ability to control the Fed funds rate is where it begins and stops for them. The Fed is not as powerful as perceived; credit market "sentiment and psychology" plays a much greater role, since long term interest rates are set by supply and demand forces, regardless of what the Fed does with their overnight Fed fund transaction fee. The Fed can make over night loans cheaper and cheaper for its member Banks; they can lower rates to Greenspan levels of 1.25%, or even zero as my friend and retired executive Lance commented, but that doesn't mean people will want loans, or that Banks will be willing to offer the loans on favorable terms. The foundational crack in the Real Estate mortgage market is something that will take time to correct; "hang over" (inventory) is still a factor we must work through, regardless of what the cost of money may be. One negative thing for the equity market was Bernanke's tone of voice. His voice trembled and his delivery sounded uneasy and unsure, even when reading his prepared remarks. We caution equity investors not to commit more than 50% of their capital until the S&P breaks through 1475 on the upside, or retests 1270 on the down side. We suspect that 1270 could be tested when the Employment numbers are posted on March 7. With that date in mind, we appreciate your attention, and as always, the Psychology of the Call matters.

JRJC - Time sensitive update

Good Wednesday morning to all our Psychology of the Call readers. We believe our conference call analysis of JRJC will make you very happy come Friday morning. JRJC will be reporting their earnings after the market tomorrow, Thursday. Do not buy or hold any shares of JRJC. Short the stock anywhere in the $16.00-$18.50 price range. We see shares of JRJC slumping to the $12.00 range come Friday. JRJC is currently trading at $18.08, it is actually up $1.10, absurd! JRJC's management stumbled through their last conference call. We were able to catch some tells from the call. Management's conviction in their business model is suspect at best; in their own words: "We have very aggressive growth goals". That kind of empty rhetoric is a recipe for disaster, and we urge you to take advantage of this opportunity. The tone of the questioning from analysts to management was horrible at best, contributing to JRJC's 46% percentage rating and letter grade of F. One analyst in particular quizzed JRJC on what many consider a "dinosaur" subscription business model, and management offered no convincing come backs. JRJC recently released some news we feel is more of a desperation tactic than reason for joy. JRJC will try to excuse their current March ending quarter in terms of the Chinese New Year, when the market was closed for a full week! JRJC relies on the market to be open and rising; neither worked in their favor for the March ending quarter. They must address this issue in their forward guidance, which will be great for shorts. We feel their guidance will raise more questions on the viability of their subscription business model going forward. We advise our readers to short JRJC into what we predict to be a train wreck conference call and guidance. The tone of the conference call will only get worse with every quarter here. Happy trading, and tell your friends, the Psychology of the Call matters.

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.

Update on SNDA

Shanda Interactive closed Tuesday at $34.70 after hitting a high of $35.00. That's a gain of 12.55% in one day. All of our expectations for SNDA remain in place. Hold your shares or call options in anticipation. Today's double digit gain is only the beginning.

Shanda Interactive (NasdaqGS: SNDA)

SNDA ($30.83) Letter Grade Rating "A", Percentage Power 93%

Time sensitive release:
February 25, 2008 9:43pm PST

Sit back and enjoy the ride with shares in hand.

It's not because SNDA beat every analyst projection for the fourth quarter of 2007 on top and bottom.

It's not even because SNDA management continues to under promise on guidance and continually over deliver quarter over quarter over quarter on their conference calls.

It's because many analysts covering the stock have been very wrong and will have to admit it come Tuesday morning. As you well know, many analysts are given bonuses for being right, so we know a few of them won't be getting any quality sleep Monday night; zero, zilch, nada.

Within 4 weeks we look for SNDA to break out to new 52 week highs. This will result from massive Institutional money pouring in and positive articles hitting the wires from popular financial sites such as Motley Fool. Our readers will have the advantage of trading ahead of those optimistic articles and upgrades by possibly two analysts.

We look for SNDA to trade up several points on Tuesday alone, potentially as high as $37.00, and to continue its climb through $40.00 by Friday February 29.

We see 2 upgrades from the current 4 "Hold" ratings. If there are more than 2 upgrades, don't be surprised. Shanda Interactive’s future in the realm of "in game advertising" is an ace in the hole and will be addressed in our next SNDA write up.

We recommend investors buy the shares before 10:00AM EST and add through out the day on any pull backs of more than 3% from intra day highs. We look for SNDA to close very near its daily high and make our followers some easy money.

We are very excited to offer our guests this time sensitive information, as always,

Happy Trading.

(On tap: JRJC)