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Tuesday, July 06, 2004
Good evening friends,
Market Recap
There was heavy selling on Wall Street today, and the charts that looked great just three trading days ago now look completely broken. For example, charts for stocks like YHOO, CHKP, AKAM, and BRCM just to name a few. These stocks were recently added to the Bulletin because they looked ready to breakout of strong bases. They did just that, but with the market's help, the breakouts failed miserably. These last three days have been brutal on many charts, and I would not touch these stocks now with a ten foot pole.
It seems like the market did not like the news that John Kerry selected Senator Edwards as his running mate. This news, along with earnings warnings from a couple of big tech players, sent the markets reeling. The Dow lost -63 points and sits right near support around 10220. The NASDAQ dropped a whopping -43 points to the support area of 1960 I mentioned last night. The NASDAQ also closed below its 50 and 200 SMAs and that is a clear sell signal in my book. If you are not in cash yet, you should be looking to be in cash after this action.
Uncertainty Again
The market seems to be telling us that it would rather see a Bush victory, and this sell off today is a good indication. The Kerry/Edwards ticket gives Kerry the best chance he has at winning the election. If he had selected Gephardt, then it was all over for him and he knew it. The Hillary for VP nonsense that was rumored was a complete hoax and was never even considered by the Kerry campaign. He had to go with Edwards instead of Gephardt. Edwards is the younger, more energetic and sad to say, better looking candidate. Kerry is after the woman voters and why not, it worked for Bush Sr. when he selected Dan Quail.
I still disagree with the market if the market thinks Kerry can win. I believe Bush will win, and based on Edwards's limited experience, I do not think it will hurt the Bush ticket at all. But sometimes the American people can surprise us all with the way they vote. This election is now up in the air, and because of the uncertainty again, the market is selling off. Unless the polls show a clear front runner, the market may not go anywhere at all before the election.
Other Factors
Not only did the Kerry announcement spark selling today but warnings from CNXT and VRTS gave the tech sector a reason to sell off as well. A few months back, I showed a chart of VRTS when it was on our short watch list: http://www.tradewithpizzadriver.com/data/charts/vr...
Looking back, it would have been a great entry for a short at $30.00 as it was never able to get above that resistance. If you haven't already, take a look at the Chart Index, it is a great way to review our charting history.
My View on a few Companies
I do not talk politics or religion and tend to keep my opinions on sensitive issues to myself to avoid controversy, especially in the TWPD service. However, since I already opened the can of worms with my opening statement about the Kerry/Edwards ticket tonight, I will discuss some individual stocks and shed some light on why (If I were a long term investor) I would not hold them for the long term.
Remember, long term trading is completely from short term momentum trading based on technical analysis and charts.
TASR
Market cap = 1.25 billion
P/E = 160
P/S = 36
P/B = 31
Revenue = 34 million
Book value = $1.37
Short % of Float (as of 7-Jun-04): 47%
This is a stock that is priced for perfection. Its valuation is extremely high, and it has already priced in 20 years of growth. I think TASR has a great product and I like the potential. But with the stock price is on stilts already, sooner or later it will come tumbling down even as growth kicks in because it is so severely over priced.
Most amateurs do not short stocks. Shorting is mostly done by professional traders. Almost half of TASR's available float is shorted so that tells me the smart money thinks the stock will eventually fall.
TASR also has another problem. Will greed overwhelm them and steer them into doing the unthinkable? Right now, their product is a very useful tool in the hands of the right agencies such as law enforcement, boarder patrol, airport security, air marshals and so on. What would happen if these stun guns end up on store shelves and available for anyone to buy? Imagine your local street gang running around the streets with these things. Or how about an intruder who enters your house and stuns you and robs you blind while you lay there incapacitated. Or the local convenience store attendant gets stunned and the assailant runs off with all the money in the cash register. There are hundreds of other examples where these tasers would be very harmful to society if in the hands of the wrong people.
Further more, these things would make punishments (if caught for the above crimes) less severe then they would be if commented with lethal weapons. Instead of armed robbery, attempted murder or assault with a deadly weapon charge, they are charged with a lesser crime because the taser is not lethal. Criminals know this and know the risk is less if caught and they will be back out on the streets instead of in prison.
I can see many problems if TASR were to sell this product to anyone else but law enforcement agencies. Will they do what is right or will they succumb to greed and sell it to anyone who wants it? I for one am writing my congressman about this and will voice my opinion. Our society is much safer if these things were left out the retail stores. A law should be passed preventing TASR from making their product available to anyone else but law enforcement officials.
One last point on TASR, do not look for many military orders. I personally can not see what purpose a stun gun would serve in the armed forces. The military's mission is to defend the US against all enemies. This means the military will not shoot unless they are fired upon first. Our enemies will not be shooting our troops with stun guns. Why would our military want to “stun” somebody trying to kill them? There may be some practical purpose for these things in the military but I can not see one based on the current mission requirements and real world events.
EBAY
Market cap = 59 billion
P/E = 110
P/S = 24
P/B = 11
Revenue = 2.4 billion
Book value = $8.17
Short % of Float (as of 7-Jun-04): 5%
This is another great company with super management and a brand name recognized around the world. It is by far the champion of internet businesses. But is it wise to buy and hold forever right now at its current value? As much as I love the business model, EBAY has been on my short watch list for 3 years now. I keep waiting for an opportunity to short it but it keeps going up. This stock held up relatively well during the internet bubble. Even YHOO took a dive during the bubble but EBAY held its ground.
Today, it trades near all time highs and shows no sign of rolling over. Still their revenue equals less than 5% of their market cap. Again, great company but extremely over valued. A great stock for short term and momentum traders but for the long term investor, buying now carries downside risk because of the excessive valuation.
RIMM
Market cap = 11 billion
P/E = 115
P/S = 15
P/B = 7
Revenue = 760 million
Book value = $9.56
Short % of Float (as of 7-Jun-04): 13%
This is a great stock for traders and momentum investors but seriously over valued and risky for long term holders if buying right now. Great products, great management and the stock price is rewarding them now but again, how much further does it go up before the bubble pops?
PLMO
Market cap = 1.62 billion
P/E = 19
P/S = 1.71
P/B = 3.42
Revenue = 950 million
Book value = $10.00
Short % of Float (as of 7-Jun-04): 17%
I put this stock on this list tonight to show you what an undervalued stock looks like. This company produces a pocket computer similar to that of RIMM. Compare the two stocks fundamentally and you will see PLMO is the better value and has more room to run. Couple these fundamentals with a great chart and I think it will surpass RIMM someday. Whether it rises to pass RIMM or RIMM comes down to PLMO levels, one day they should trade at relatively the same valuation.
KMRT
Market cap = 7 billion
P/E = 21
P/S = 0.31
P/B = 2.93
Revenue = 21 billion
Book value = $25.00
Short % of Float (as of 7-Jun-04): 23%
Well, where do I start with this stock? A dog company for sure but is the stock over valued? On the contrary, it is undervalued and the stock price is reflecting the under valuation by continuing to sky rocket. Their revenue is 3X their market cap and they have no debt. It is no wonder this stock is flying high. I do not like the company, their management does not have a clue, and WMT is eating them up. But I would not short the stock at this point because of the great chart and the fact that it is under valued.
Crime is Legal (only in America)
I lose respect for companies that hide behind the bankruptcy laws and just walk away from their creditors and investors by filing for bankruptcy. Sure its perfectly legal for them to do it, I do not blame the management for taking what is available to them. I blame congress and the laws that govern bankruptcy; they are far too lenient. It is nothing more than legalized theft. People who do not pay their debt that they have accumulated are thieves in my opinion. But the law allows for anyone to bail out on debt, leaving the creditor holding the bag. This makes theft legal in my opinion and it must stop.
Laws need to be changed to require public companies who file for bankruptcy liquidate all assets. Chapter 11 bankruptcies should not be allowed, they should have to file chapter 7 if they are going to file at all. Emerging from bankruptcy with a clean slate, raising cash by issuing new shares, and continuing to trade publicly under a new symbol should be outlawed.
It is an easy escape for management to just throw up their hands, drop back 10 yards and punt instead of working through the tough issues and trying to turn the company around with good hard work. But our laws allow for these bankruptcies. So if you are a struggling company like KMRT, why not take advantage of the law?
My congressman will hear my opinion of the bankruptcy laws for publicly traded companies as well. The bottom line on KMRT is, yes, it is now under valued but I would never buy the stock in protest of their bankruptcy, their outright mismanagement of assets, and total disregard for investors well being the first time around.
I am not just picking on KMRT, my position on this subject is the same for all other public companies that claimed bankruptcy, came back to the market with a clean record, and able to compete again in a market that slaughtered them in the first place. If they do not pay their debts, that is theft. Theft is a crime in America as far as I know. In America where laws are the most lackadaisical in the entire world, I guess crime is legal these days.
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
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