Monday, January 6, 2014

01/04/2014 Week Watchlist

Market: $SPY began consolidation into the new year as investors lock in profits at the start of the new year rather than at the end of 2013 to avoid paying taxes. I remain bullish on the market but with great caution because the market is due for a correction and its just a matter of time or the right catalyst to shakeout investors into selling after one of the best performing year in decades. While most of the sectors consolidated last week, the finance sector (index: XLK) remained strong. This is why we are bullish on finance stocks like JPM and FNMA long term because they are very cheap looking forward. If you are still 100% invested in the market, I'd recommend selling a good portion because at this point the risks of a 5-10% downwards market correction are too high. Always lock in profits.

P.S: When the market begins correcting, you can bet overvalued high-flying momentum stocks like NFLX and AMZN will sell-off. For this reason, we are only interested in buying and holding undervalued growth stocks like JPM, FNMA, SPCB and CLNT.



JPM - gapped down a bit after dividends but held up and continued to new highs (since the recession). We have a starter position in $60Mar2014 calls and plan to add more this week into a breakout. Our goal is to sell near 62/65 resistance zone. We have a hard stop under $58.2.

GE - sold off with the overall market/tech sector until we got stopped out for modest gains. We plan to rebuy Mar2014 call options once the tech sector (index: XLK) bottoms out. We still see short term upside to $29/30.

SCTY - The solar sector is awake once again and SCTY is setting up for breakout into new all time highs with tremendous upside to $80 in the medium term. Coincidentally, Monday morning Goldman Sachs upgraded it with an $80 price target. We are prepared to buy Feb2014 call options after it tests res at $63. Be prepared.

NFLX (short/puts) - Netflix has been overvalued for too long. Its got too much competition and faces a growth challenge. The chart is near broken so I expect this stock to correct over the next few weeks/months. We are prepared to buy $300March2014 puts.


SPCB - SuperCom are basically a security software company that acquired a major competitors business thru a very efficient deal that could triple revenue, thus making the stock much cheaper than it already is. I encourage you to read this recent seeking alpha article on Supercom. SPCB is currently trading at P/E 9 while the industry average P/E is 36.  At P/E 20, which is broadly considered fair value, SPCB would be valued over $11/shr. However, if we look forward ahead of the acquisition, SPCB would be valued well over $20/shr. Anything is possible considering that technically there is no historical resistance once SPCB hits new 52wk highs at 6.13. We are long SPCB from avg $4.93 (currently $5.47). Our medium-term target is $8-10/share. Our stop is near 4.85 support.

FNMA- still consolidating under 3.3 as finance sector shows strength. We are prepared to buy the 3.3 breakout with upside short/medium term upside to $7/shr.

CLNT- Chinese stocks are heating up again. Clean Tech is a Chinese growth and value stock trading cheaply with P/E 2.7. This stock is valued somewhere in the $20s-30s (currently $5.80). Short-term upside to 7, medium-term upside to 11-13. Stop-loss is near 5/5.3

VNDA- still waiting for the breakout above neckline at $13.

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