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Tuesday, August 03, 2004
Good evening friends,
Market Recap
Considering all the bad news, the markets have been hanging tough the last few days. The Dow was down -58 points today which is not really that bad. The good news is, with the Dow hanging on as it has been in a sideways trading range the last four days, this has helped its 50 SMA cross back above the 200 SMA ever so slightly. Keep in mind, this is only one positive indicator, and one indicator does not make a positive chart. The Dow still has a lot of work to do before we can get bullish on this market.
Speaking of work to do, the NASDAQ looks dreadful. Today's -32 point loss with a close at the low is telling me to stay away from any long positions in technology. The S&P 500 was down -6 points, and looking at today's trading on this index, the high was 1106 with the 200 SMA at 1107. As expected, the index rolled over and sold off upon meeting this resistance line.
Upcoming Fed Meeting
The Fed will meet on August 10th to decide on another rate hike. The street is already focusing on the FOMC meeting, and the futures markets have already priced in a fully expected .25 basis point increase in interest rates. When this happens, it is always hard to try and predict which way the market will go once the news is released. Does it sell off because interest rate hikes are bad for stocks, or does it rally because the interest rate hike is already priced in to the market?
At this point, it could go either way. Our focus is to react to the reaction of the crowd and not to follow the crowd in a panic sell off or buying frenzy. There is a third possibility after the interest rate announcement and that is for the market to do simply nothing. It has happened before. Recalling the last meeting, I mentioned the .25 point hike was already been priced in. When the news came out, it was a non-event; the market hardly reacted at all. With the slow volume month of August upon us, I suspect the meeting on August 10th will be another non-event for the market.
Our Friend, the ANALyst
There are still pockets of uncertainty on the economic front but as far as stocks go, some pretty solid earnings have come out in recent weeks. The SOX index (semi conductors) was downgraded again last week by UBS. They are concerned that consumer spending will slow down due to increased interest rates. The thought is that consumers will be less likely to take out loans to buy discretionary items. You know…discretionary…like buying your son or daughter a computer to use in furthering their education. Not discretionary like buying a sports car, or a boat. You have to wonder what some of these analysts are thinking sometimes.
Another example is the down grade of one of the strongest stocks in the market before today (PLMO). They sure know how to kill a rally in a stock. I wonder why anyone would step in front of a train the way some of these analysts have a knack for doing. If a stock is doing well, leave it alone, ride it up as high as it will go and as soon as the trend breaks, down grade it then. That is when people should sell, only when the up trend line has been broken.
Chip companies have been raising their outlooks for the 3rd and 4th quarters. Major companies are predicting a solid back to school season filled with technology purchases. I like PLMO because the product will be big; Stanford U will start issuing PDA's to students this year. This could catch on at more Universities, and smart phones are still a thing of the future. I am not trying to pump PLMO; the chart is saying it will have record sales this year. If you do not believe me, believe the chart. It is obvious, and the analysts are not looking at the chart.
Another example of why I do not like analysts is ASKJ. Stocks are getting hammered due to high expectations of the analyst, and the latest victim is Ask Jeeves. Last week they reported more than double their revenues and double the profits. What's the problem? Their guidance for the 3rd quarter was below the analysts' estimates. ASKJ earned $60.3 million in revenues in the 2nd quarter. They project revenues of $74 million for the 3rd quarter - that's nearly a 25% increase. The analysts, however, are looking for $76 million so the stock sold off.
Companies tend to guide a bit lower, reasoning that it is better to guide low and beat expectations rather than to guide high and miss. The analysts have the crowd so well trained that even the slightest miss looks to be ten miles wide. Analysts are not technicians but if they were, I think the market and individual investor would be much better off. I think I will look for a job as the first technical analyst, “Techanalyst” if you will. Anyone know of any brokerage house looking for this type of specialty? I believe I could help the firm and investors alike.
OTC BB Watch List
EGSR - Still looks good
StockCharts listing
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