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Thursday, October 28, 2004
Market Recap
It was a flat day for the markets without much happening in the way of stock price movement. The NASDAQ is up +5 points and has reached the top of the Bollinger band; this indicates that a temporary rest is due. The Dow only gained +2 points but managed to close above that 10000 level for the second day in a row. The S&P gained +2 points as well. There are only three trading days before the election. I miscalculated the days on the count down the other night; I forgot to include the actual Election Day on November 2nd. Trading for that day will happen before the votes are tallied, so the Dow still has three days to rise 288 points. The odds are, if it does not, we will have a new president. This is purely based on statistics of stock market history. Of course, history does not always repeat itself.
Interest Rate Hike – In China
There were a lot of stocks taking a hit today on interest rate news. Do not blame Mr. Greenspook; it was not the feds this time. China is raising their interest rates. The demand for goods in the country has made it such that the government is trying to slow down growth. Rampant growth can lead an economy into an overextension. If the economy grows at a modest pace, that growth is much more likely to sustain itself and continue for a longer period of time.
Unfortunately, this rate hike news hit many of the commodity stocks today. If interest rates rise, then companies will borrow less, building will slow down, and demand for building supplies will decrease. Needless to say, this move by China today burned a lot of investors who bought the China stocks yesterday because of good earnings being reported and analyst upgrades. Today those same stocks took a dive. What perfect timing. Come out with earnings, get the crowd revved up about buying the stocks, then lower the boom on interest rates the next day, catching all the newbies in the spin. Most of these new investors who bought yesterday are already losing money on those trades one day after they bought. That has to be frustrating.
ASKJ's Turn
It has been attack-the-analyst in the commentaries this week. We do not normally dwell on one subject, but with all the earnings reports we have had coupled with the suspect information we are receiving from these so called experts, the analysts have caught our attention a number of times. ASKJ came out with their earnings today and the stock was hammered. Income was up 70% and their revenues nearly tripled, yet the stock took a 20% hit. These are great numbers folks, but it does not matter; the crowd follows the analysts like a puppet on a string. ASKJ had very good earnings, but the stock was crushed just because they did not meet an expectation that was undoubtedly inflated to such a level that it could not possibly be reached or exceeded.
Oil Being Pumped
Oil slipped down to the lowest level in recent weeks, closing down to nearly $50 a barrel. That is a 10% decline from its recent highs. All of a sudden, the oil stocks are being labeled as strong buys by the analysts as the price slips. Oil prices are down almost $5.00 since we found the article pumping these oil companies early this week. Hmmm…a coincidence? I think not.
Peanuts Anyone?
These lower oil costs coupled with a new agreement with pilots looks like it just might save Delta Airlines (DAL) for the time being. The fears of bankruptcy have weighed heavily on investors' minds lately. Now that DAL has a new labor deal, this may sucker a few new investors in and give hope to the many that have lost enormous portfolio value holding on to this dog. I am afraid this is all just a smoke screen. The fact is: airlines are all in trouble. I would not own an airline stock right now, no matter how they try to spin the news. These stocks will face a lot of “turbulence” in the future, and it is best to stay clear of them. Sure, there will be the occasional pop every time oil prices go down, but lower oil prices are not enough to save these poorly run companies. Southwest Airlines is the best run airline in my opinion and I do not even want to own that one.
The industry itself cannot seem to make any money. Hard to believe they are losing money. Every time I fly, the planes are filled to capacity and the air fares keep going up. The last flight I was on was three hours long and all they gave me was a bag of peanuts. They say they cannot serve meals because the knives and forks can be used as weapons. Okay, I will buy the knife and fork excuse, but how about a sandwich or something that does not require utensils? Serving peanuts instead of a meal is an obvious cost cutting move. The last time I flew first class I received a meal. I guess they do not think terrorist will buy a first class ticket? Enough rambling, the point is, it is my opinion that investors will not make money in airlines stocks unless they short them. I do not recommend buying them at all, not even for a bounce play. You could wake up one morning to news of a bankruptcy and then your stocks will be worth about as much as that bag of peanuts they serve you.
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