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Tuesday, September 28, 2004
Market Recap
The market had a decent day with the Dow gaining +89 points, the NASDAQ up +10 points, and the S&P up +6 points. The Dow bounced nicely off the 61% retracement level in yesterday's chart. It is a nice reversal bar on the chart, but the index still remains below its 50 SMA. The NASDAQ bounced off its 50 SMA and managed to close higher than it opened on better than average volume. The S&P mirrored the NASDAQ, it to bounced after hitting 1101 (the 50 SMA) and closed with a positive daily bar.
Is GOOG worth $145.00?
$145 per share is the latest price target issued this morning by an analyst at CSFB. When does that lock-up period end again? It must be getting close and it seems they want to sell some shares to the mislead public. CFSB was one of the lead underwriters of the IPO. Hmmm, amazing. I will not fight the trend by shorting GOOG, but it seems the stock is over-valued. On the other hand, what matters is the chart, not valuations. Any stock is worth what someone else is willing to pay for it. As of tonight's close GOOG is worth $126.00
The GOOG price target leads into tonight's topic. Many times the market provides us with ample material for a solid commentary. Then there are the articles that we come across from time to time that do not sit well with me and I have to comment on them to protect our subscribers from the ever present wolves. Occasionally I will find a good article that speaks the truth but those are hard to find these days. Here is one that actually has some merit, and it is a good article in my opinion. http://moneycentral.msn.com/content/Investing/Simp...
Analysts will often downgrade or upgrade stocks to position the stock price for their own benefit or the benefit of the firm and the firm's investment bankers. Ever wonder why a stock goes down soon after an analyst upgrade? Or why a stock that was downgraded will close higher than that day's opening price? It is very strange and puzzling action if you are not aware how Wall Street really works.
When I first started to follow the markets some 13 years ago, I always wondered why I never saw an upgrade until after a stock had ran up 1000%. Stocks that were $3.00 a year ago were now $70.00 and I am just now hearing about the stock? Every analyst from every firm is covering the stock and upgrades are coming out daily, the media is hyping it up, and it is on the cover of Money magazine being touted as the next MSFT. I asked myself why did we not hear all this when it was $3.00? After this hype the stock continues to fly from $70 up to $100.00 over the next month. This last run to $100.00 is called the blow off top. You may have not heard about the stock until a couple of weeks after the hype started, and now you have finally heard about it and want to buy it at $90.00 because some analyst has a $150 price target on it. You think there is plenty of upside left based on the target price. But as soon as you enter the trade, the stock starts to slide. By now, you are most likely the last one to the party and you will be left to turn the lights out after everyone has left. Sounds a little like the internet bubble days.
An example of a stock like this would be EXM. At the beginning of August this stock was $5.00, and it is now up over 1000% in two months. We never heard of the stock until it was $50.00 and mentioned in the media and on BSNBC. It went up to $65.00 after the mention and then dropped as low as $40.00 as few days ago. Ever wonder why you never hear about these high flyers until they have already flown? Just once it would be nice to hear some pro say, “here is a stock that trades at $3.00 and will be $30.00 by this time next year.” However, when they do say this, usually stocks with these claims ends up down at .30 by the time that year is over. These types of hypes are scams. Whoever is making the claims has already loaded up on the stocks and will sell into the strength of the pump.
If you have ever received an email about a stock that promises big gains, beware, you are probably the target of a pump and dump scheme. You will see these schemes with pink sheet stocks that trade at .10 with claims of a stock price jump to $2.00 and $3.00 in a matter of weeks. Many people receiving these emails will fall victim of this scam. Do not buy pink sheet stocks. Remember, if you get an email from somebody you do not know claiming big returns if you buy a certain stock, that is a BIG RED FLAG.
Some of the ugliest charts on Wall Street will get a downgrade after all the damage has been done. A stock goes from $50.00 to $10.00 before the analysts come out and tell us, we should sell it. An example is KKD. When KKD was up near $45.00 we heard about how great the company was and the CEO was on BSNBC almost weekly. The downgrades did not start until the stock was in the teens; it currently trades at $12.15.
Just remember that stocks are being accumulated by these brokerage houses before they want to spread the word about how much they like the stock. They will not upgrade a stock prior to owning the stock themselves. The same holds true for 99% of the stock services out there, they will accumulate a stock and then send an email telling you to buy.
Without mentioning names, one who is famous for this can be seen on Fox news every Saturday morning. Another is a former CBS market watch ‘guru” who was investigated earlier this year for this type of pump and dump trading. To note, TWPD's service is nothing like these other services and we stake our reputation on it. We produce a bulletin every night and any stock that appears as “New Today” can be bought by our members before an Alert is sent. Our subs, can buy before an Alert if they chose to. By publishing our plays the day before, everyone have time to evaluate a stock before the next days trading begins. You have plenty of time to check the charts, fundamentals, and any other sources of information.
This story in the link above really points out the power of the analyst to manipulate a stock. There are several stocks cited where analysts are downgrading based on “valuation”, only to see those companies purchased outright for a significantly higher price than what the analysts value the company. So who is right? Is it the analyst who is paid to tell the crowd what to buy and what to sell? Or is it the business that is working out the deal to purchase the company? When businesses find a take over target, they analyze every last bit of data on that company to identify a price that is a fair value to all. That will be the offering price and you can bet unless it is a hostile takeover, the price offered will be the true value of the company.
What all of this means for us is more ammunition to prove the analysts opinions are something we want to avoid. A quick check of any downgrade will explain to us whether or not we want to act as a contrarian. Downgrades that cite valuation are the best downgrades for us to act on. Charts do not care what the valuation of a stock is. If the chart looks good, the stock will continue to rise regardless of what its valuation is so these downgrades can be a chance for us to enter a good stock on a pullback. Downgrades based on physical factors such as lawsuits, FDA rejections, dilution of shares, etc, are most likely going to break the chart pattern with a big gap down. Avoid these downgrades at all costs.
OTC BB Watch List
- GASE
- EZEN
- COPY
- TREN
** All of these still look good on the chart.
Here are some recent IPO's with good looking charts. They will not be added to the Bulletin because the volume is too thin.
- LMRA
- MRLX
- LPL
- SRVY
- RNOW
- ECST
StockCharts Listing
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