The Power of Patience in This Market

Patience in the stock market. More often than not, it’s a euphemism for buyer’s anxiety or fear. But not always. Today, I want to share a glimpse at how patience can help make you a successful investor.

We’ve been sitting on our Applied Materials (NYSE:AMAT) play for an agonizing month and a half now. When I brought the semiconductor stock to your attention in a weekly alert, I let you know that while I liked the stock’s fundamentals, now didn’t pose an attractive time to add a position to our portfolio. That’s proven to be the case.

Shares of AMAT are down 12.19% since I first mentioned it.

Volatility has also re-entered the market in a big way. With the Eurozone debt contagion only now starting to make sense to the markets (more on that in a minute) and economic fundamentals at home, it’s no surprise that stocks have made large moves — in either direction.

But back to patience… In the investing world, rule-based decision making is king. Investors who follow a predetermined trading plan (provided it makes sense) generally end up on top. It’s only when we eschew our trading precepts and let fear drive us that losses are guaranteed.

Still, there are powerful forces working against the few investors who want to follow the rules these days. Turn on the financial media on any given day and a bevy of “analysts” and “commentators” will be more than happy to give you so-called free advice on a minute-by-minute basis. From their perspective, the only way to make money is by trading constantly and quickly.

That’s good advice if you’re an expert prop trader with the resources of a multi-million dollar firm behind you, but as an individual investor, it’s a recipe for disaster.

When I started the Rhino Stock Report nearly two years ago, I had one goal in mind: to deliver gains in any market. So far, we’ve been pretty successful at that, but only because we followed the pre-determined rules and remained willing to sit out if things got volatile.

As investors, we can’t control the market’s short-term swings. So while we may see value in a particular company, the old adage stands true that, “the market can remain irrational longer than you can stay solvent.”

The difference between buyer’s anxiety and a real trading plan is understanding which conditions trigger our entry back into equities. Take a look at AMAT’s chart below:

This stock remains stuck below two strong overhead support levels — and until shares prove otherwise, there’s no reason to believe the short-term downtrend will reverse itself just because Applied Materials is a “fundamentally sound” company. The trading plan right now for this stock is to wait for a breach of the 200-day moving average before adding the position.

Most of the market is in a similar state right now, so few other stocks offer better buying prices.

An Update on Some Open Positions

I wanted to provide some quick guidance on our open positions from 2010 (and late 2009). On average, our plays are beating the S&P 500 by around 3.55% this year — a decent return for six months, but still far from the performance we saw in 2008 and 2009.

For new subscribers, both NRG Energy (NYSE:NRG) and Becton, Dickinson(NYSE:BDX) remain in buy range (You can get the analysis on each by logging into rhinostocks.com). I’m leaving Berkshire Hathaway (NYSE:BRK.B) as a hold right now, since we’ve yielded 12.6% on the stock already since January.

A Return to Regularity

Over the past couple of months, the Rhino Stock Report hasn’t been as regular as it should have been. Today’s Friday Market Update marks a return to regularity. Expect weekly market updates and as-needed alerts going forward.

Where Does the Sell-Off Stop?

I had hoped that today’s email would be a buy recommendation for the latest addition to the Rhino Stock Report’s portfolio, but another steep day of losses for the broad market are forcing me to adjust on the fly and fill you in on what’s going on with stocks right now…

This week, investors have been experiencing an eye opening pullback at the heels of more drama in the Eurozone over Greece and its fellow PIIGS countries, Portugal, Italy, Ireland, and Spain. But when can we expect the slide to stop? Here’s a peek at what the S&P 500 looks like right now:

The index hit a top at 1220 back at the end of April, and it coming back down quickly toward a potential support level at 1150. Watch that level very closely today — if shares don’t finish at or above that rough level (the horizontal blue line above), we can expect to see the pullback continue perhaps as low as 1050 before it gets another good chance to hit the brakes. That said, with momentum veering down toward oversold right now, I think it’s likely we’ll see stocks cool their downward pressure today and tomorrow.

But the technical charts are hardly the only factor that’s moving stocks right now…

Fundamental data are going to be the real drivers for any sort of market movement we get in the next couple of weeks. Earnings are making a big impact on the numbers. Economic updates — like tomorrow’s jobs report — will have a huge effect on the numbers. And, of course, the situation over in Europe will continue to push the market to its whims.

For the past couple of weeks, investors have been concerned that the rally we’ve been enjoying for the last year and change was coming to an end and we’d be headed back for a second dip of recessionary price action.

While those fears are certainly warranted, I don’t believe that we’re seeing any strong signs of serious correction as of yet. That said, I’ll be watching the market closely over the next few days, keeping you informed if I believe it’s time to start positioning our stock portfolio for downside risk.

Like I said before, I’d hoped that today would be a buy alert. A week or two ago, I sent out a Watchlist with five potential Rhino Stock plays. Since then, I’ve narrowed it down to one stock that I’m bullish on this month, Applied Materials (NASDAQ:AMAT).

Obviously, we won’t be adding any positions to our portfolio until we have some notion of where the market’s headed in the short-term. Like I’ve said time and again, even the best fundamental plays can get shellacked in the face of an outwardly bearish market.

I’ll send you detailed analysis on the company when we’re finally ready to pull the trigger.

Until then, keep a close eye on where the S&P ends the day. A closing level below 1150 doesn’t mean you should liquidate your 401(k), but it does mean that I’ll be sending you a new alert with more details on the implications of that moment.

April Watchlists Bring May Profits

A number of unforeseen developments — including some tweaks and modifications to the Rhino Stock Report website — have kept any new investment alerts from hitting your inbox for a while now. So let’s hit the ground running this month with a look at what the market’s up to and a handful of watchlist stocks that are worth watching right now.

First, a look at the broad market…

The big news on Friday was the SEC’s decision to initiate fraud proceedings against Goldman Sachs, arguably the most well connected firm on  Wall Street. While Goldman had been posturing for a more publicly favorable position in the past few weeks (after taking flak for overpaying employees and profiting from the mortgage meltdown), the SEC’s suit alleges that the firm knowingly packaged shaky mortgages and sold them off to clients who trusted the firm’s triple-A rating.

Or, as the Atlanta Journal-Constitution’s Jay Bookman so eloquently put it:

Described another way, [Goldman's institutional clients] handpicked sick, diseased pigs to be made into sausage, then bet millions that the resulting sausage would make people sick. Goldman, for its part, made the poisoned sausage (and got paid), sold that sausage to its own unwitting customers (and got paid again), and. like [those big clients], bet millions that those customers would get sick (and got paid yet again).

That downward market pressure provided investors with the worst single-day loss in stocks since February… but Friday’s slide was still tame compared to the rally we’ve been enjoying in 2010. With earnings season upon us once again, company fundamentals and economic data are going to drive the market, and we’ll be stuck along for the ride for better or worse.

That’s why it’s so significant to stick with companies that are fundamentally sound in this market environment. After all, we can’t count on a rally scenario forever…

Watch This Watchlist

In the last few months, we’ve seen our Rhino Stock plays perform exceedingly well — the majority of our open positions are up double-digits. Now, it’s time to take a look at our next profitable play. These five stocks present a strong mix of growth and value right now, but we’ll likely wait until later-on in April to pull the trigger on an actual trade — earnings season and Goldman fallout add too much unnecessary risk for right now.

1. Applied Materials (NASDAQ:AMAT)
Applied Materials provides nanomanufacturing products for the semiconductor industry. With chipmakers still reeling from the economic slowdown, this stock is still trading at a discount to what I believe to be a reasonable valuation. Coupled with some of the groundbreaking microchip technology this company is developing, it could make a welcome addition to the Rhino Stock portfolio this month.

2. Abbott Laboratories (NYSE:ABT)
While Abbott Labs has made a name for itself in the pharmaceutical and diagnostic products market, I think that this company’s consumer nutrition line is even more compelling. With high-margin niche brands like EAS Myoplex, this stock should continue to see segment growth as Americans focus more on fitness.

3. Cemex SAB de CV (NYSE:CX)
Don’t underestimate the growth potential of Mexican concrete maker Cemex — as one of the largest building materials makers in the world, this company stands to reap the benefits of astounding growth in the emerging market.

4. iRobot (NASDAQ:IRBT)
I’ve been a fan of iRobot for a while now. While the company’s Roomba product line made the stock a household name, it the burgeoning defense contracting business that has my interest for 2010. Still, this small-cap could be too prone to market whipshaws for our purposes.

5. Paychex Inc. (NASDAQ:PAYX)
This payroll service provider has managed to carve out a profitable niche for itself — one with high exit costs for customers. As Paychex expands its portfolio of services, it should see sizable revenue increases with minimal marketing costs.

With the earnings creep sneaking up on us, I’d like to make a move on one of these positions here in April. The technical outlook for stocks coming into next week will likely dictate just how soon we pull the trigger. Keep an eye on your inbox on Friday for next week’s Market Recap.

The S&P 500’s Next Stumbling Block and The Fed’s Foul Play

There’s no question that 2010 is already proving to be a tough year for stocks. Until this week almost all broad-based stock indexes were down close to 5% on the year, and economic fundamentals don’t seem to be improving much either. That said, not all stocks are having as rough a time of it…

We’ve added two new positions to the Rhino Stock Report’s model portfolio in 2010 – both are currently up on the year with an average of 8.6% gains. But the S&P’s next stumbling block could keep us from adding a third position until March. Here’s why:

A colossal breakdown in the S&P 500 in mid-January caused the index to fall below the 50-day moving average, a key technical support level. And although the market has staged a serious comeback in the last couple of weeks, that 50-day moving average could prove to be too tough of a resistance level right now.

With emphasis on economic numbers – like interest rates and jobs – this week, the fundamentals are driving the market. Since our economic fundamentals have been anything but bullish this year, the chances of seeing a break above the thin blue line are diminished.

That’s not to say that the S&P won’t move above the 1109 level next week – only that it’s going to take more bullish power than we’ve currently got on tap. For us, that means that we’re not going to make any new moves until we see a bounce off the 50-day or a breakout above it. (To learn why that’s significant, watch Planning Your Entries and Exits With Technical Analysis)

The Fed Fouls the Markets

Stocks are trading lower today thanks to the Federal Reserve’s decision to increase a peripheral interest rate after yesterday’s market close. To be clear, the rate (which dictates how much interest banks must pay out in emergency loans) doesn’t have much of an effect on monetary policy – but the change still has investors shaken.

That’s because a rate increase of any sort was so unexpected. The Fed slashed interest rates following 2008’s financial meltdown in order to lower the cost of capital and add liquidity to the seized-up credit market. An increase suggests that economic fundamentals are improved enough to increase the cost of borrowing – something that investors don’t see right now.

Although it’s unlikely the Fed will hike more significant rates, expect investors to continue to be anxious until the next bout of economic numbers comes out and they forget about rates once again…

Our Big Earnings Week

Next week is a significant week for a few of the companies in our Rhino Stock Report model portfolio. Three companies – NRG Energy (NYSE:NRG), J.M. Smucker (NYSE:SJM), and SPX Corporation (NYSE:SPW) – will announce their quarterly numbers to the public. I’m optimistic about all three stocks, so don’t expect a significant change-up in our portfolio positions next week. I’ll fill you in on the results in next week’s Market Recap…

Webinar: Planning Your Entries and Exits Using Technical Analysis

It’s been a long time coming, but the Rhino Stock Report’s first exclusive webinar is finally available for Rhino Stock Report members. To watch the video, just click play below…

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