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Wednesday, June 02, 2004
Good evening friends,
Market Recap
The markets are still performing far below my expectations and continue to be trend-less. The Dow had a decent day gaining 60 points while the NASDAQ was down two points. Two points seems close to a break even situation, but a look at the charts reveals a close below the open and a move back down into the area it has been basing for the previous three days. This move back into the base implies a failed breakout. Anytime a stock or index comes back down into a base after breaking above, it is a negative sign.
Trend-less
I want to believe the market will go up, the charts are indicating they want to go north but with the turmoil around the world, it does not seem possible that a market could go up at all. It has been a very tough market for the last five months. “Trend-less” is about the best word to describe the direction.
The NASDAQ started 2004 at 2000 and in five months has managed to move down 11 points. That is about as boring as watching hair grow at the annual Bald Men of America convention. The good news is, in the past, these prolonged trend-less, go no-where markets were followed by a prolonged, hard trend move. This move could be up or down, but when it does happen it should be a hard break and a good opportunity to make some cash either long or short. My guess is, it will be an upside break which is what we would all like.
Let's Get Defensive
As mentioned previously, the security sector looks like it will be hot this summer. Let's take a closer look at this sector, since we are holding a few security stocks.
Traditionally, the defense sector has had very few players, and they were all major companies. Boeing, Northrop, Lockheed Martin, and General Dynamics are some that come to mind. Typically we heard about these companies bidding on a new fighter aircraft, ship, or submarine contract. Usually there is a major contract up for grabs when you hear these names.
Now we are hearing about other smaller cap companies like IPIX, XYBR, ARTX, SSPI, MAGS, TBUS, and MACE (just to name a few). More companies are defining themselves as a “security” company because that is the hot sector at the moment.
I remember back in the internet bubble in 1998/99 when companies were adding “.com” to the end of their company name. Seems like every week a company would change their name to “something.com” and that would cause their stock to suddenly go up. When the bubble busted, many companies removed the “.com” from their names.
We trade on momentum and stock charts not on company fundamentals, so we are not being fooled by some of these fake security companies. Some have very little to do with security but if the stock is pushed into the security sector or has security in their company name, the stocks may move no matter how much security they really do. This is why we do not invest in these companies; we know that a car wash company (MACE) or a camera used mainly for real estate virtual tours (IPIX) can barely be classified as security companies.
The fundamentalist needs to research these companies before trading or investing in these stocks to find out what the companies really do. I point this out because we have some members who trade on fundamentals, and I do not want them to get into stocks that may not have anything to do with homeland defense. I am in stocks because they move up or down, not because I know what each company does or what their fundamentals look like for short term trading.
With the Homeland Security department handing out contracts to make the U.S. a safer place, money is being spent on all kinds of technology. Some of these small cap companies are now winning contracts for security technology and when this starts to happen, you know that it will be a hot sector.
We want to be in the hot sectors because those stocks can really move. For example, look at the effect the contract news did for SSPI yesterday. The stock was up over 60% at one point. When the stocks in this sector get news, they pop up in a hurry so this is clearly one of the sectors that we want to be in as the markets heat up. I believe security stocks are a win, win situation. If the market goes down because of terrorist threats, these stocks will go up. If the market goes up in a nice rally, then the tide should lift these boats as well.
Finding the right stocks within the sector is the key to focus on. We have seen minor gains in some stocks, and major pops on news in others. Being positioned in the right stocks at the right time is how we will make the enormous gains.
Remember, terrorist attacks are happening around the world on a weekly basis, and there are constant threats against the U.S. The Olympics are also coming up this summer, and an election later this fall. All of these factors make for a volatile world where security companies will prosper. People will not attend events if they do not safe, so organizers of events like the Olympics will pull out all the stops to make sure things are very safe.
Another Olympics like the 1972 summer Olympics in Munich, and we could see these security stocks turn into the next “internet boom” like run, but hopefully it will not come to that. Making money from of another person's misery is not something that I want to do, so I hope there are no attacks against our beautiful country. None of us should be looking to profit from that. The reality is that the world is not as safe as it use to be. This is a sector that should have a lot of big winners in the future. We will find the right charts and then hope that it is prevention and not reaction to a tragedy that propels the stocks forward.
As always, thank-you for your support past, present and future! Have a great night everyone; we will see you all Sunday evening.
OTC BB Watch List
- UNWR: ready to move up big with a break above 3.08. Buy point 3.10
Notice: No Bulletin on Thursday June 3, 2004
As I will be attending my oldest son's graduation the evening of Thursday June 3, I will not be able to produce a Bulletin. The next Bulletin will be Sunday, June 6.
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