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December 15, 2005
Apple Is Not Finished, AK Steel and Sirius Seem Rational, Gold Corrects and RIMM Set for Long Battle
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Troy Wolverton of TheStreet.com reports: When Apple Computer introduced the flash-memory based iPod nano earlier this year, many analysts quickly dubbed it a "must have" gift for the holiday season. If Amazon.com customers are any indication, the analysts were correct. The e-tail giant allows customers to create "wish lists" on their site. Among the 44 most requested products in the company's electronics store are all four iterations of the iPod nano. But it's not just Apple's nanos that are in demand. Nine different iPod models -- representing all but one device in the company's digital music player lineup -- are listed among Amazon's most requested electronics products.
Apple is not about electronics, but rather religion. The iPod has set the stage for this stock to become a computer/electronic powerhouse for the next decade. In addition to the iPod sales, there will be subscription revenues from music sales and iPod add-ons. The halo effect will lead to a surge in Mac sales and this will lead to a new generation of Mac users. Sure, the stock is pricey and overbought, but you can bet that pundits will be buying the dips. On the price chart, I see support around 55-60, but doubt that the bulls will let this one fall so far and I would expect a bounce if the stock hits 65.
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John Shinal of CBSMarketWatch reports: Investors in Research in Motion Ltd. should be prepared to see the BlackBerry maker pay close to $1 billion if it settles its long-running legal battle with NTP for terms that are looking both reasonable and possible.A settlement with the small patent-holding company that won a patent-infringement case against RIM is more likely than it was a month ago, now that the two parties are talking through a mediator and after several more legal setbacks for RIM
This stock may go the way of Rambus (RMBS). Remember them? They are engrossed in legal battles and their whole future depends on the outcome of these battles. In contrast, the tobacco companies have legal battles, but they also have stable revenues and high profit margins to support these battles for a long time. RIMM is in the tech world and it is easy to fall from grace once you loose your footing. On the price chart, the stock broke support at 70 and this level turned into resistance. There is nothing bullish to report as long as 70 holds.
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James Dlugosch, editor of The Rational Investor newsletter, reports: Bar none my favorite stock for 2006 is Sirius Satellite Radio (SIRI) . That may be a surprise as SIRI does not look or feel like a value opportunity given its very small amount of current sales relative to its market capitalization. And yet in an environment of tight fisted conservative corporations and a risk averse market, I believe SIRI to present a fabulous contrarian opportunity to Rational Investors. Another favorite of mine for 2006 is AK Steel (AKS). In a market seeing valuations of whole number multiples of sales, AKS trades for a mere fifth of trailing sales. The company is expected to grow its earnings by 20% in 2006 and yet shares only trade for a mere 10 times the forward estimate of 77 cents per share.
On the price chart, AK Steel suffered a sharp decline early this year and then formed a triangle consolidation. Notice that there is support from broken resistance around 7. A break above the upper triangle trendline (9) would be bullish and open the door for another run above 15. A move below the lower trendline (6.5) would be bearish and target further weakness below 5.
On the price chart, SIRI failed at resistance with a bearish engulfing and gap down. This is a volatile stock and it found support just below 7 from the early November lows. There is some hope as long as 6.7 holds. Further weakness below 6.7 would be quite negative. Look for SIRI to fill the gap with a move above 7.5 to revive the bulls.
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Bloomberg Reports: Gold in New York plunged 2.8 percent, the biggest drop in a year, on speculation demand will slow from Japanese investors after the Tokyo Commodity Exchange increased the cost of trading the metal. The Tokyo exchange, the world's second-largest metals and energy futures market, boosted minimum deposits for trades to curb speculation after gold surged to a 24-year high of $544.50 an ounce on Dec. 12. Gold sold in yen climbed 18 percent in the five weeks ended Dec. 9. Tokyo gold trading last month was the most since February 2003 at 1.92 million contracts. Tokyo's higher margin payments have ``pulled some of the speculative interest out of the market,'' said Paul McLeod, vice president of precious metals at Commerzbank Securities in New York.
Excuses, excuses. There is always a reason somewhere. The New York Mercantile Exchange announced on 28-Nov that margins rates for the gold futures contract will increase to $1,500 from $1,000 for clearing and non-clearing members and to $2,025 from $1,350 for customers. This did not seem to affect the price of gold for some reason. Perhaps Gold just become overbought after RSI moved above 80 and it raced above the upper channel trendline. The decline is certainly sharp, but this just puts gold back into rising price channel that has been in place since September.
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Posted by Arthur B. Hill at December 15, 2005 06:41 AM