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Thursday, July 01, 2004
Good evening friends,
Market Recap
Where's that rally? Well, that's what I get for trying to predict market direction one day after the fed raised rates. The markets were down big today with the Dow falling over -100 points and the NASDAQ down -32 points.
Let's recap the Commentaries from last week. I wrote that if the fed raised interest rates ¼ percent, there would be very little reaction the day of the decision. I think that was fairly accurate based on what happened yesterday. The market had already priced in the ¼ percent hike. What the market had not priced in was a ½ percent hike. We all know that rates will continue to increase, because they are still historically low. Since the market knows rates will continue to rise, perhaps today's selling is starting to price in another ¼ percent hike that will come next. Keep in mind, the Fed can raise rates at anytime; they are not required to wait for the next meeting. Rates can be raised next week, next month, or even tomorrow if they choose.
Where Did the Sell Off Come From?
I took the contrarian's approach, and I predicted a rally today. There was not a rally; instead we sold off. Remember, historically stocks go down when rates rise and yesterday we had an interest rate hike. Keep in mind, the only information we had yesterday is that rates were raised by ¼ point. We did not know before the market opened today, that
1) We would get a disappointing employment number,
2) A couple of big players in technology would give earnings warnings, including ELX, and
3) A downgrade of our internet leader-YHOO.
All these factors before the open today when added together may have contributed to the sell off.
Jobs, Unemployment, and the Fed
We have already heard from the Fed. The ¼ point raise in short term interest rates was all but a given. The sentiment on “measured” increases was also expected from them. That is why we did not really see any action in the markets yesterday. There was nothing we did not already know, so there was nothing to react to.
The Fed pointed out that the economy is moving along rather well, and we do not have a fear of inflation at the moment. Historically low interest rates still, along with a humming economy and no fear of inflation. So why is the market selling off? With all other data being decent, with the exception of rising rates, the market should be rallying in my opinion but that is too logical I guess. It still holds true that the market never does what the majority expects it to do and acts illogical at times.
There is still some uncertainty as to which way the markets are going to go. I am leaning towards up, but there are some that are still undecided. The supply management index numbers were off the other day, indicating a bit of a slow down in manufacturing. Unemployment numbers were revised up by 1,000 today, and chances are, tomorrow's job numbers will be up as well.
It is all a mixed bag, making it very confusing for the average investor. Even the market pros do not seem to have an idea which way the markets are going to go. Progress cannot be made until this indecision is out of the way.
These down grades of solid charts like DHB and YHOO over the last couple of days make it even more frustrating. You wonder what they base these down grades on. I will have a whole commentary sometime soon about overvalued stocks that keep going up. Examples are EBAY, TASR, KMRT, RIMM, and others. What I have to say about these four balloons will take up a whole commentary in itself (More to come on them in another commentary).
As far as this talking head analyst downgrading YHOO a week before earnings, it makes no sense at all in my opinion. He based his down grade on valuation. If he is doing his job, he should know whether or not they will meet or exceed earnings and should have based the downgrade on that.
If earnings or going to disappoint, an analyst should already know that and he should have said, “Earnings will be less than expected so I think it is a sell”. Otherwise, why downgrade it? Maybe they want to get more shares on the cheap because they know earnings will be good. The analyst down graded YHOO while raising his target price. How can you down grade a stock and raise the target price at the same time? That's ludicrous.
The bottom line here is you can never get the truth out of these analysts. The crowd will always react to their comments, and there is nothing we can do about it but swallow the temporary damage. YHOO had a strong chart that was on fire going into the earnings release. This downgrade was just another unexpected stunt that no one could have predicted.
If there is one thing we can predict is that things are unpredictable. We need to be ready for anything. With all the uncertainty in the air, we need to continue trading as we have been in this sideways market. If you can not trade and watch your stocks closely, cash is king until the market commits to direction.
Reduced Commissions
You may be wondering why I am trading so much when I say to just stay in cash. The reason for me personally is because my broker (Schwab) has finally succumbed to the pressure of the cheaper online brokers. They have drastically reduced the commissions I had previously been paying. I now pay a flat $14.95 per trade for unlimited shares. Because of this, I tend to make trades that I would not have made before because the commissions would have costs me hundreds of dollars. I trade pretty good size lots, so for $14.95, a stock does not have to move much for me to make money. I will reduce the number of trades in the future and limit those trades to only stocks I think we can make a minimum of 10-20% gains.
I sold some stocks today in the last hour of trading mainly out of frustration. The charts of most of these stocks are still in tact so if you still own them, you will be fine. This down grade of YHOO today just got under my skin, and I became emotional for the first time in a few years. This was totally out of character for me. I would rather be holding my cash at this point then to be dealing with analysts and their off the wall, out of the blue surprises.
Bulletin Updates
There were many bearish engulfing candles on charts today, so there are not many updates to the comments on the Bulletin. I will wait to see how these stocks react tomorrow. Right now, one red candle does not make a chart, but if we have follow through to the down side, many of these charts will be damaged. I would rather wait a day before making a hasty decision to remove them from our list. As you know, days like this reveal very few new charts to add to our Bulletin so I have no new stocks tonight. Have a great weekend everyone and enjoy your holiday, the market will be here Tuesday.
No Bulletin Sunday July 4, 2004
The market will be closed on Monday July 5 so there will not be a Bulletin on Sunday. The next Bulletin will be Monday evening.
Please tell a friend about our service. We would like to become a referral service only. With your help, we can be. As always, thank-you for your support past, present and future! Have a great night everyone; we will see you all Tomorrow evening.
OTC BB Watch List
- None
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