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  • HYPNOTIZING ACTION By WSS Research Team 0 comments
    Nov 29, 2012 2:09 PM | about stocks: URBN, KORS, ATVI, RGR, AAPL, BBY, BBRY

    David Silver

    Okay, so we all know that the Fiscal Cliff negotiations are continuing and I liked it better when there was more guessing than knowing what was going on behind closed doors. The second we hear about a point that is trying to be made (higher tax rates, spending cuts) it is a line drawn in the sand, and to keep the country from falling off the Cliff, both sides need to keep the media out of it and get it done. In Politico this morning, there were two interesting articles. The first was about what the deal is shaping up to look like, and the second was the most likely "loopholes" that would be closed.

    A deal is looking to raise approximately $1.2 trillion in new revenues while cutting entitlement spending by no less than $400 billion, hopefully much more. The end of the wars in Iraq and Afghanistan will take a big expenditure off the books, but there will always be another hot spot somewhere where the U.S. military will be needed, so I don't expect such a big drop in defense spending. The compromises are starting to roll in from both sides though too. President Obama indicated he doesn't see a need for rates to return to the same levels as during the Clinton Administration (39.6% for income over $390,050), while Speaker of the House Boehner is compromising on the amount that could be raised through new taxes. Before the election he was at approximately $800 billion, while today, he seems to accept that more than a trillion dollars will be raised through new taxes, not just through the closing of loopholes.

    That brings me to the second article about closing the loopholes. At best, the top 10 would pull in an extra $834 billion a year, according to the Joint Committee on Taxation figures. Considering the hole lawmakers are trying to fill is several trillion dollars large, it's clear they wouldn't even come close. Let's take a look at the top five costliest (for the government) loopholes. Exclusion of employer-sponsored health insurance is the largest of the expenditures, as it costs approximately $164.2 billion. More than 60% of Americans get their insurance through their jobs, making this "loophole" part of the fabric of the workplace. Number two is employer pension benefits, i.e., your 401K. The money contributed to or gains accrued aren't taxed up front. The idea is designed to encourage Americans to save for retirement. The next is always on the top of people's list, the mortgage interest deduction. However, this will only raise approximately $99.8 billion, but that is for every person, not just the "rich," so it will probably be lower than that. Additionally, many in the middle class depend on the deduction to really bring down their tax bills. Those are just the top three, but the next few are also pivotal to Americans across the financial spectrum, not just the "rich."

    So the market goes up and down, back and forth as new comments emerge about the Fiscal Cliff. The all-clear is sounded and the market goes higher, or, only a few minutes later, it is the end of the world and the market is crashing. Fundamentals, heck, not even technicals are driving many stocks these days. It is only the rhetoric coming out of Washington. I can't remember the last time that the market was this tuned in to what was coming out of Washington. The market feels like it is ready to believe politicians and really take off if we get an agreement on the Fiscal Cliff, however, more press conferences with bad news, and the market could be looking for some trouble. Stocks are down off their highs for the day, but still in the green.

    Doing Detective Work with Google
    David Urani

    You've gotta love the way the internet is constantly changing the game, and that applies to stock market research as well as anything else. Heck, nowadays I've always got my Twitter feed in the background to help keep up with the action hour to hour (follow me at @DavidUrani); there are a lot of news wires, hedge fund managers, traders, and analysts tweeting some great information out there right at the instant it happens. Another neat tool that's out there right at your fingertips is Google Trends, where you can do some proactive analyst work yourself. Just go to google.com, go to the "more" menu, select even more, and then "Trends."

    From there, all you've got to do is type something in and you get a nifty multi-year chart that tracks the amount of search queries for the given phrase. The values are based on a scale of 100, with 100 always representing the highest value to date. Sometimes the most important analyst work you can do is to simply find out what consumers are buying, and by tracking their search habits one can get a pretty good idea of how much interest there is in that particular item. Obviously it's not an exact science and some buzzwords work better than others but in many instances you can glean some interesting info.

    As we go into holiday season, I've been getting curious as to what's hot this year and what's not, so I've been on a Google Trends binge of sorts. Here are some interesting findings (all charts year 2004 to present):

    Urban Outfitters (NASDAQ:URBN) is one stock that's had a good year. It was as low as $23 at the start of the year but the Company really seemed to shift into gear in the second quarter. Consequentially the stock does trade at somewhat of a premium now (P/E ratio above 19) so it's key that the Company's sales remain hot. So is URBN still a hot destination this Christmas season?

    (click to enlarge)

    Above is the Google Trend for "urban outfitters." As you can see the latest reading is the highest ever (100), compared to 83 last November. It's looking like once again URBN is turning in a solid year of demand growth (or at least interest in their products), judging by the searches. And the thing is, the Google searches always peak during December shopping season, meaning there's even more to come. Last year, the trend rose from 83 to 97 in December.

    Another hot retailer this year has been Michael Kors (NYSE:KORS), who's really been churning out a desirable product line and whose stores have been a top destination. So much so that this has become a real momentum stock with a premium even larger than URBN (P/E is more than 26). Are they keeping pace?

    (click to enlarge)

    You'd have to say that with a stock as pricey as KORS the Street won't be impressed unless they continue to turn in blowout results. But judging by the Google search history for "kors" (you get a matching chart for "michael kors"), I'd say interest in their merchandise is still on fire. Another handy feature that Google added is key news items labeled by the letters. As you can see, point D was the previous peak last December which may have coincided with the holidays, but also the fact that they made their IPO then. Once again, searches will really peak in December.

    Here's an interesting result with regards to Activision (NASDAQ:ATVI). This is a Company that really leans on the success of its annual Call of Duty game launches, which have been the best-selling video games on the market for the past several years and account for a large chunk of the Company's revenue. Below is the trend for "call of duty" and by the looks of it, the mania might have been wearing off for the past couple of years (even though sales have reportedly continued to hit records). The peaks coincide with their November release dates each year. I may be a little worried that the Call of Duty franchise is losing its luster, the decline in searches this year looks pretty sharp (it may have also run into some competition with a new Halo game). Coincidentally, ATVI also got downgraded by Sterne Agee today, not looking too hot in my book.

    (click to enlarge)

    Here are some others I found interesting:

    Did Sturm Ruger's (NYSE:RGR) gun sales surge again after this election like they did in 2008? By the looks of "ruger" searches they may have (although the stock is already up more than 30% since the election, you may have missed the train by now).

    (click to enlarge)

    Apple (NASDAQ:AAPL) released its new iPad mini last month, but looking at "ipad," it might not have made the same splash as the previous model shown at point B.

    (click to enlarge)

    Best Buy's (NYSE:BBY) troubles have been well publicized and "best buy" shows that they may have indeed lost the plot. This year's October low was well below last year's (and 2010's as well) and as of today the November reading stands at 90 versus 98 last year.

    (click to enlarge)

    And don't get me started on Research in Motion (RIMM). "blackberry" searches don't look like they're ever coming back.

    (click to enlarge)

    I could keep going (it's endless analyst fun) but you get the idea. Just be wary of which words you choose to get a representative sample.


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