As we approach the one year anniversary of the horrific "Flash Crash" of May 6th, 2010 we have to face the reality that virtually nothing has been "fixed" or changed.
This was brought painfully home to me when in four of my personal accounts I was suddenly stopped out (I had a stop-limit in place at $30 a share) of Jazz Pharmaceuticals (JAZZ).
As Bert Wilkison reported in his April 27th Seeking Alpha article about the JAZZ "Flash Crash", on April 27th, 2011, the stock opened at $33.59. But at 10:00 AM EST the stock "...plummeted for approximately two minutes before finding a hard floor at $23.50."
The approximately 29% plunge in share price in less than five minutes was shocking and certainly violated the SEC 10% "Stock-by-Stock Circuit Breaker Rules", adopted after the flash crash of last May. It makes clear the following:
Under the new rules, a U.S. stock exchange that lists a stock is required to issue a trading "pause" in a stock if the stock price moves up or down by 10% or more in a five-minute period. The same pause will be in effect on all other U.S. stock and stock option markets, and the single-stock futures market, resulting in a uniform halt. After five minutes, the exchange that issued the pause may extend it if there are still significant imbalances between orders to buy and sell shares of the affected stock. After a ten-minute pause, other exchanges are free to resume trading in the stock and once that occurs, trading may resume in the over-the-counter markets."
As Bert wrote in his article,"It has been "officially determined" that the crash in May of 2010 was initiated when a single large trade set in motion a computer-generated-high-frequency-market-wide-sell-off, in which many investors' stop-limits were "unintentionally" triggered.
Much like in previous flash crashes of other stocks, JAZZ almost immediately completely recovered from the sudden and unexpected drop, but not before quick-handed traders could take advantage of the situation.
The problems which cause "flash crashes" have not been corrected and eliminated, and that is something all investors need to be aware of. I hope to have more to say about this situation in my next report.
Now to "the Apples of my eye". Apple (NASDAQ:AAPL) apparently is sitting on a cash "kitty" worth nearly $66 billion and according to a report I read today, they may be able to grow that number to $100 billion before the end of its next fiscal year. AAPL has no debt to speak of either.
To put that into perspective, Microsoft (NASDAQ:MSFT) has around $49 billion in cash with over $13 billion in debt. I like MSFT as a "cash cow" and hope they'll pay out a rich "special dividend" to shareholders as well as figure out ways to increase revenues and earnings.
That being said, AAPL by many measures may have much more upside stock price potential, especially if their wealth continues to hold and grow. What AAPL will do with all their money is yet to be determined, but if Steve Jobs has his way it will be used to enhance the potential for AAPL stock to reward its shareholders.
With silver prices correcting significantly, I'm buying more Silver Wheaton (NYSE:SLW) below $37 and accumulating my favorite international silver producer, Silvercorp Metals (SVM) below $12 a share.
I've begun buying back shares of the Sprott Physical Silver Trust ETF (NYSEARCA:PSLV) and hope to soon buy back shares of the ETFS Physical Silver Shares Trust (NYSEARCA:SIVR) if silver falls below $40 an ounce.
Lastly, I used Tuesday's dip in ConoccoPhillips (NYSE:COP) to buy shares around $74.50. At that price this cash-generating energy company is currently paying a dividend yield of around 3.5%. Recently, COP reported quarterly earnings of around $3 billion or $2.09 a share, and they have potential to generate even more earnings if energy prices stay at current levels or go higher.
COP operates through six segments: Exploration and Production (E&P), Midstream, Refining and Marketing (R&M), LUKOIL Investment, Chemicals, and Emerging Businesses.
The E&P segment explores for, produces, transports, and markets crude oil, natural gas, natural gas liquids, and bitumen. It also mines deposits of oil sands in Canada to extract the bitumen and upgrade it into a synthetic crude oil.
COP has over $28 billion in debt but its operating cash flow (trailing twelve months) is over $17 billion and its levered free cash flow (ttm) is an impressive $10.57 billion. It is well managed and although the shares could fall lower, this appears to be a good level to begin accumulating shares from my perspective.
Market corrections like this are often good times to begin to "nibble" at the very least. Last week the Fed and Dr. Bernanke told us that their intentions are to keep short-term interest rates near 0%, and that their current monetary policies "...will continue through at least the next 2 meetings [June 21-22 and August 9th, 2011]".
So stock market conditions should be favorable in the months ahead. But, and this is a serious caveat, we have to do something about the ongoing threat of "flash crashes" and these massive market interventions by huge traders using algorithm-based computer programs.
JAZZ taught us again the threat is real and ongoing. How to stop this is yet to be determined.