On Thursday Google presented its quarterly earnings. It disappointed expectations at the bottom line and only beat a bit on the revenues side. The stock went down in after-hours trading and during the next day. The year-over-year growth looked good at a quick glance, but as the blue revenues curve of the long term chart shows, it came partly from the dip during the financial crisis.

Google is since two years a slower growing company and since more than four years its stock price didn’t move substantially. If we look at the market cap of 146B, this is no big surprise either. Something like a few hundred billion dollars seems to be a wall for companies, at least in this era.

Compared to Baidu, Google is clearly the less interesting investment and trading target.

Yesterday Apple got hit by news that a prominent consumer organization recommended to skip the iPhone 4 because of its faulty hardware. In their eternal search for the coolest appliance Apple seemed to have found a phone that does not work anymore as such. Really cool. Anyway, what I want to show here is the linkage between Apple’s and Cirrus’ stock:

The top chart is from CRUS and at the bottom we have AAPL. Yesterday the market was way up, but AAPL dipped and CRUS was also relatively weak. But overall CRUS shows a hefty relative strength compared to AAPL. Both react of course to the whole market with Apple being at least relatively strong against that benchmark.

So far CRUS is nicely up since my last post about the gadget mania. Earnings will be reported next week on 7/20 before the market opens. Hopefully the new era of small and cool hardware will propel it even more into the sky – to the place where it belongs.

This morning Baidu takes a hit premarket and Google jumps up, because Google’s license for operating a web site in China has just been renewed. Looking at Google’s weekly chart reveals that the stock has been a laggard compared with the indices over the past months. The main reason has been the problem with the Chinese authorities, but there were also other clouds visible on the horizon.

Baidu’s chart shows that the stock has risen 6-fold over the last 18 month. Given the news today, the price could have exhausted its shorter term potential for now. So, GOOG has perhaps some snap-back potential, but isn’t at a high, while BIDU is at a high, but seems also to be expensive, at least in the short run.

Pricewise this is the classical situation, which leads so many to believe that the stock that fell back is the better investment candidate. Wrong, at least generally. In this case, however, there is new information involved. Google’s prospects in China don’t seem to be so dim as many have argued in the past.

Conversely there is still a risk that Baidu gets crushed by Google in the long run. It was the perceived elimination of this risk that made the stock run up so much, and not only the possible gain of Google’s current market share of web search in China.

Conclusion: For Baidu it seems better to wait for a real breakout of the base in a trend formation. Google may have some short term potential right now, but its growth also slowed down considerably since two years.

During the last half year and especially the last month SanDisk’s stock has had a remarkable relative strength compared to the whole market.

This maker of flash memory is one beneficiary of the strong trend towards smart phones and tablet computers. Right now its chart has also the promising pattern of a restart in a longer trend.

However, there is a big caveat with this stock. As the long term chart reveals, SanDisk has a highly cyclical product, memory chips, which is probably the mother of all cycles. It remains to be seen whether this stock will be able to convert its cycling nature into a secularly trending growth monster, at least for some time.

Yesterday’s spooky break down of the markets culminated in some stocks having losses of nearly 100%. The exchanges now try to “correct” this implosion after the matter of fact with a crude rule that cancels all trades with more than 60% movement in a time frame of 20 minutes. They seem to call this ad hoc rule the “Clearly Erroneous Ruling Policy”.

But were these trades clearly erroneous? Most of them were probably caused by stop and market sell orders that didn’t find buying counterparts. From an exchange-technical point of view this is business as usual – nothing erroneous. Viewing it from the flip side, the legal angle, most likely exchanges are completely within the law with their invention of ad hoc policies like this.

But does such a ruling make sense for traders and investors?

• For traders who rely on a stop loss system, a monster drop like this may be demoralizing if they lose their position near the low.
• Aggressive traders using margin may be put out of business. Their broker may liquidate their position at exactly the wrong time. Or they do it themselves with a market order that gets delayed under fast market conditions. Both likely profit from the trade cancellation.
• Investors not knowing about a stop loss are mostly unaffected by temporary crashes like this.
• Those professionals who think they can buy dirt cheap, may find themselves with one leg chopped off if their sale occurred outside of the arbitrary trade busting time frame.

Overall, I think, it indeed makes sense to protect the ordinary trader who tries to prohibit substantial losses with stop sell orders.

For visualization purposes let’s have a look at the weekly chart of URE, a real estate ETF. Yesterday it seems to have crashed by more than 90% in a few minutes before rebounding to a day loss of only 10%. One year ago it got devalued by roughly the same factor 10 during the financial crisis.

Investors would have lost in half a year the same amount as traders in half an hour. But investors do this regularly, because stopping a position is nothing they have in their toolbox.

The conclusion for me is that, while yesterday the traders were worse off than investors, generally it is the other way round. In other words, it still pays off to use the stop loss technique.

Another conclusion may be that many ETFs seem not to have built real trust with regard to inherent value. The market apparently views them more as trading vehicles whose fundamental value is more or less unknown.

And the final conclusion for quoTraders is of course to use a system that concentrates on bigger stocks with real value and promising growth outlook, but doesn’t rely on fundamental analysis while the ship is slowly sinking.

Among the things a quoTrader should never do, is trading stocks that depend on the FDA. Just look at this terrible chart of InterMune. Yesterday news came out that ITMN received a “complete” letter from the Food and Drug Administration, the stock got halted – especially nasty, namely intraday – and reopened with a loss of 75%.

All this after it made two days ago a restart in something that can only be called a violent trend. Of course it is also a suspicious trend, because of the double gap that essentially accounted for the whole move.

If you had shorted it some weeks ago, you could have incurred a loss of even 200%. Here we have another thing a quoTrader won’t do: Going short, at least not with single stocks likes this one.

The reason for the up and down is the same medicine and a “slight” change of opinions from officials about it. In this case it seems to be a law that requires studies and not only one study that show that a drug is overall a gain for patients. This prompted the FDA to demand a third phase III trial after external experts (an outside panel of the FDA) recommended an approval earlier.

First Solar’s earnings report surpassed analyst’s expectations on the bottom line but revenues remained within forecasts. Do we have here the beginning of a new long term trend?

The weekly chart shows that it may still a bit early for believing in the next run. On the other hand, First Solar seems to have weathered the margin drop pretty well – at least compared to other solar companies. Helpful was the cheapest production process of the industry for solar cells that sets this company apart from its competition.

Solar stocks are highly dependant on governmental subvention, but our oil reserves are limited. The glass is half-empty. Everyone should understand that, but no one seems to be able to imagine what will probably happen in some decades, or earlier. For solar stocks that may mean a rosy future. It is just a question of how shortsighted politicians like to be and how long they postpone the inevitable, clinging to their mental time horizon of about four years.

Baidu surprised with better than expected earnings and its stock gapped up this morning. It also guided up for the next quarter.

Remarkable was a note of the CEO that Google’s semi-exit will only moderately help Baidu and that there is still strong search competition in China. He also expects Baidu only be able to grab one third of Google’s business. Is this Asian understatement? The longer term chart reveals a very high expectation of the market that has resulted in a lofty price.

Is it too late to jump on board here? Of course not, but you have to trade the stock with the right system. As usual.

Integrated Silicon Solutions posted yesterday better than expected earnings and guided up for the next quarter. They have an even more impressive daily chart than Cirrus Logic.

Their long term chart shows the typical ups and downs without a real direction of an intact but not substantially growing semiconductor company. Similar to CRUS they have had three strong last quarters.

Earnings just came out and CRUS beats by a meager $0.01 but guides revenues a bit up. The short term trend looks promising as demonstrated by the daily chart here:

Looking back the last nine years reveals that Cirrus Logic is a cyclical stock with no fundamental growth.

However, every company that languishes for years has potentially the chance to change its business and put in a higher gear as, for instance, Apple had proven. Coincidently Cirrus makes chips that are built into Apple’s iPad and iPhone. The gadget market is expected to grow strongly during the next years and so may do this stock.

Technically encouraging is that CRUS broke the high of the last years and that it so far had three quarters in a row with healthy earnings (pink line). Three quarters in a row? Yes, that seems to count already as a success for a semiconductor company.