ISRG Surges AH on Earnings Blowout

(UPDATE 1/21/2011)

ISRG went as high as $334.39. I sold my option at $13.60, missing the top dollar at $13.90. Now I could care less if I lose my money on BAC and C... hehehe. Thank you Goldman for being a wonderful contra-indicator.

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ISRG (Intuitive Surgical) has always been an elusive stock for me; I can't develop a tradable feel for the stock, the price movement is always radical, both up and down, options prices seem always inflated and not very liquid.

Then, two days ago, a Yahoo SKF board member linked a sell recommendation by the vampire squid, aka Goldman Sachs. (h/t heartless)

It caught my attention because it was a rare recommendation (any "sell" recommendation is rare), and Goldman was recommending 2/1 put spreads on (I think) the front month. Clearly they were expecting a bloodbath in the earnings report, which was today.

Since the vampire squid's forex desk has been a disaster for the investors (they recommended short Euro at the last bottom at 1.18, among other fine calls), I decided to pull up the ISRG chart and see if there's a case against Goldman.

I thought there were. They're in the chart below, but particularly the positive divergence in MACD. And just to test my thinking, I bought one February out of the money call (@330); if I was wrong, I would lose $3 (x100, of course). $330 is where the stock runs into some overhead from May to August last year.


And this is ISRG after-hours:



Never trust the Squid.

Of course the Squid may attack AH or tomorrow to make sure the stock gets beaten back down and I still lose $3.

Again, never trust the Squid.

Silicon Valley vs the Rest of the US

Or tech vs traditional. Or companies that continue to innovate vs companies that don't. I don't know how exactly to define it, but take a look at the comparison charts below. (They are 5-year charts.)


The first four are the tech companies, three in the Valley, one up in Washington. Netflix (NFLX) broke to all-time high today. Intuitive Surgical (ISRG), Apple (AAPL), and Amazon (AMZN) continue to break out from the high. Their charts say it all: Recession? What recession? Also notice that, except for ISRG, their recent bottom was NOT March 2009. They bottomed sooner than the rest of the market, and off to the races ever since...

Compare them to the rest. First two of "the rest" are tech companies, Google (GOOG) and Microsoft (MSFT). Even though they have recovered from their lows, they don't compare at all with the first four. (That tells me, unfortunately, GOOG has already become MSFT...) Rather, they resemble big, traditional businesses that are listed in New York Stock Exchange, rather than on Nasdaq. Their charts look more like J.P. Morgan Chase (JPM) or Coca Cola (KO). The last one is Freeport McMoran (FCX), a copper and gold company. Although it has recovered a lot, it is still far from recapturing the all-time high.

They (NFLX, ISRG, AAPL, AMZN, etc) are clearly in a bull market, disregarding the rest. In a bull market, you buy a breakout from the high. That's what I learned in the book by William O'Neil (How To Make Money In Stocks: A Winning System in Good Times or Bad, 3rd Edition).

I am not advocating anything, going long or short, here. Do your own DD, but I sure wish I bought every single breakout from the high for these stocks.

Nasdaq Betas That Don't Come Back Down

With just about every analysts eager to call the top, the market marches on, bid or no bid. My portfolio has been rather stagnant for 2 months, with gains in precious metal stocks offsetting the weakness in financials. Probably a top is near, therefore, but I don't think the market will crash back to, say Dow 6,000, right away as some of them proclaim.

Why? Nasdaq "beta" stocks: AAPL, AMZN, GOOG, ISRG, PCLN.

They refuse so far to correct much. AAPL corrected the most after earning and filled the gap. But others, particularly AMZN and ISRG, hardly looked back, and has since resumed the upward march.


How much upside could there be for the major indices? Another 10%? 5%? I am debating whether it is worth to stay in the market, but when I look at these Nasdaq tech stocks it is tempting to believe this is a new bull market, in which you would buy stocks on the breakout from the high.