Tuesday, April 12, 2005
All Stocks On A Short Leash
My wife told me when I woke up this morning that I was having one heck of a happy dream last night. (Yes, this is a true story). Like any good husband, I instantly had a rush of fear since I had absolutely no recollection of it. She told me not to worry, because she could tell from my mumblings in my sleep that I was happy because I was making tons of money in the market.
It isn't unusual that I dream about the market, since I spend so many of my waking hours thinking about it. But, it did serve as a reminder to me that when things get this bad, you'd better be looking for the other side of the trade. So, that's what I did after getting stopped out entirely within the first hour of trading. The 10-day support area, as I identified earlier today, provided the tell I've been looking for that it was time to put money to work again, at least for a trade. Obviously, I'm a bit surprised that it worked out as well as it did, but as the saying goes, sometimes the harder you work, the luckier you get.
Nevertheless, we've got a lot of crosscurrents on the tape over the next few weeks, so I wouldn't count my chickens before they hatch. As they signs says, all pets (i.e. stocks) must be on a short leash. In this market, you've got to smoke'em if you fortunate enough to get'em, and that makes for a very challenging market indeed. See you tomorrow before the opening bell!
With no big surprises with the release of the minutes, a relief rally has begun in reaction. Funny how those 10-day support levels (see below) provided a timely clue! Best of luck to you as we finish out the next 90 minutes.
Imergent Plays Hardball
How risky is it to say something negative about a company? Imergent (IIG) just filed a $15 million dollar lawsuit against StockLemon.com. And, you wonder why I don't talk more about excellent shorting opportunities!
At times I receive similar emails from readers. Dave sends the following email to me this morning:
"With the earnings announcements beginning, I was wondering if you could tell me what your daily procedure is for handling this extremely large amount of information. How do you receive the earnings reports (IBD, DGO)? Do you perform a sort of triage (grouping the most promising in one catagory, the next most in another, and so on)? What do you do with the ones that you find most promising? And the last question, how much time per day is spent analyzing the earnings report?"
Great questions Dave. Earnings season is a busy time for me because I have to play two different roles: 1) that of an long-term investor who monitors the earnings reports closely in all of the positions currently owned as well as those on my watch list that I want to own in the future, and 2) as a trader I have to keep watching for opportunities in the reaction of reports that are provided.
Like most traders who have to don two different caps, I tend to spend more time on the former, than the latter. Trading during earnings season is always more difficult, so I prefer to spend more time digging around the fundamentals (looking through the latest reports, running the numbers, & listening to conference calls). At the same time, I am using the data from IBD and others regarding earnings performance as the basis of some of the stock screens I run. For example, I recently created a screen that specifically looks for stocks with expanding profit margins which tends to perform well in this kind of market. I'll use the data I find to figure out where I need to focus my energy and capital. Like trading, I build watch lists and research as time permits.
And, finally, how much time do I spend analyzing the earnings report? Frankly, it all depends on what I'm after. If I think I'm wrong in one of my holdings, I'll spend a lot of time trying to boil down the fundamentals in order to determine if the market's reaction to the report was correct and whether I should sell and move to a competitor. But, as many of you know, with trading I don't pay much attention to the fundamentals. That's why earnings season is a challenging time for those of us who try to incorporate both strategies at the same time along with a heavy dose of information overload.
I'm Searching For Answers
Nice Systems (NICE) is one of the few stocks that show consistent accumulation by the elephants and a higher-trending stock price. As the company's website explains, "NICE is the global provider of advanced solutions that help organizations extract meaningful insight from interactions." I'm not sure what that means, but apparently others do and they like what they see.
As someone who made their share of boocoo profits in TravelZoo (TZOO) last year, I'm still surprised that I get email from readers asking my opinion about this one. Here's just three reasons why TZOO is no longer on my trading radar: 1) last year's big winner is frequently this year's big loser, 2) a nice well-developed head-and-shoulders pattern (see blue circles below) is in place, and 3) look at that nasty downtrend which still shows no signs of being broken. With plenty of good stocks not acting well, why would I ever waste time trading this loser?
Looking At The 10 Day Chart
When the market confuses me, I tend to pull up all different kinds of charts to get a better idea of what is going on and what may happen. I found this 10-day chart of the Dow quite helpful as we retest a key area of support. Those of you who are nimble and are trying to grind it out for a trade, would establish a position here with a stop just below the bottom red line.
Random Thoughts & Readings
- John Dorfman provides a top 10 list of places to find stock-picking ideas
- BCA Research believes positive things are in store for the non-discretionary household products sector
- Is the United States a debtor waiting to go bust or a huge demand engine powering the global economy?
- Tobin Smith looks for market catalysts
- Want a good real-estate short?
- We watched Sideways last night on DVD. It was a good film (I liked it more than my wife). But, it left me wondering if there were any pure plays on growth of wine tasting. Any ideas? Let me know!
- Jeffrey Saut makes his call for the week
- "This week is options expiration week. Tuesdays and Thursdays of these weeks tend to be the strongest, while Wednesdays tend to be the weakest. As I stress every month, though, the most consistent bias of all is for weakness the day after expiration." - Jason Goepfert at Sentimentrader
- No one can buy 100 stocks, but you can use Zack's list as a start point
- The mismeasure of TV
- Stocks between $21 & $40 where the odds favor near-term gains
- The best-kept secret on Wall Street is corporate dividend reinvestment programs or DRIPs
- With the market's latest grind, we're no longer in oversold territory
- Here are some examples of hilariously bad behavior interviewers report as actually happening during interviews with potential job candidates
- Thompson believes the most likely scenario is that oil prices will come down dramatically
- Drug prices outstrip inflation?
- Bill Fleckenstein sees gold as the beneficiary of an inevitable economic crisis of confidence
- CXO finds that technical analysis can be significantly profitable when applied to relatively immature stock indices (NASDAQ Composite and Russell 2000), but not when applied to mature stock indices (DJIA and S&P 500)
- How many buy signs make a bottom?
- The booming market for armored cars
- Real estate agents flood a hot market
- Those who seek to find trouble rarely miss
- Whitney Tilson shares a few of his 50-cent dollar stock picks with Wall Street Week
- Trading tip: if you're losing, don't continue until you know why. Every trader knows when they're not doing their best, but the key is to adjust when you acknowledge it. Try to develop the ability to stop what you're doing, back up and re-evaluate before proceeding forward
- Falling fortunes of the wage earner
- The best time to buy gas is before lunchtime?
- When you are right no one remembers; when you are wrong no one forgets
- Have any $2 dollar bills laying around?
- Bankruptcy will be a tougher road, but few options exist
- If you're bored, you can always play with your change
- I performed poorly in Fortune's corner office quiz
- Trade-Ideas provides a handy stock screen which looks for stocks that have went down at least six consecutive trading days
- The cold war begins anew?
- No more free trades!
- "The answers to three questions will determine your success or failure. (1) Can people trust you to do your best? (2) Are you committed to the task at hand? (3) Do you care about other people and show it? If the answers to all these questions are yes, there is no way you can fail." - Lou Holtz
My Trading Radar
"If it looks like a bear, and smells likes a bear, and acts like a bear, then it is a bear." That's one comment I received in an email from a smart reader this morning. I've been receiving a number of those kind of emails lately, for what it is worth.
I'm doing my best to stay out of this nasty battle, even though it sure isn't easy. Recently I've tried to do more than rent a stock for a few hours, and once again I pay the price for doing so. I had to bail on every position currently owned in my trading portfolio this morning as my stops were hit. As I've commented before, I'm tired of grinding out profits in short-term roundtrip daytrades, but Mr. Market is under no obligation to bend to my will. So, once again I learn the lesson - if you've been lucky to see any profit in this tape, don't waste time taking it because it won't last long.
Stocks on my trading radar this morning include ORCT, LANV, LCRD, NICE, MOSS, UGI, CLCT, GGR, USG, MDR, STEM, CIG, BXG, IPMT, INFY, CUNO, LEXR, & WYNN. But, like yesterday, unless something new and interesting pops up, I'm happy being on the sidelines.