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Tuesday, November 16, 2004
Market Recap
The markets took a well deserved rest today after the recent run-up. A pullback was due and we knew it would come. The culprit was an unusually high Producer Price Index (PPI) number released before the bell. This number was way above the estimates, and it gave sellers a chance to take some profit after the recent market run-up. The Dow lost -62 points, the NASDAQ lost -15 points, and the S&P dropped -8 points.
This high PPI number may be an indication that inflation may be creeping up on us. If so, it opens the door for another rate hike by the fed in their December meeting. I did not think the fed would raise interest rates again before the end of the year, but with this news today, I will have to re-tract my previous statement. It looks like another rate hike is possible unless this number is revised down:
http://money.cnn.com/2004/11/16/news/economy/ppi/i...
It is clear that oil has been a huge factor in the increase in the PPI number. A rate hike in December is now a possibility, although the Fed will want growth to continue and may let inflation run slightly. If we continue to see news of rising prices or if oil rebounds and head back up over $50 a barrel, this could really shake things up with the Fed's decision.
The good news is, even though the indices were down today, bulletin stocks performed well. We still have stocks making 52 week highs and the ones that did not make new highs today are still looking good. MACE, CNCT, and DWA were removed to make room for better performers. I want to stress that we need to concentrate on small cap stocks. Small cap stocks will out perform the major indices in bull markets. We have mostly small caps on the bulletin and overall, we are looking very good. We will continue to be positioned in these stocks as I consider them to be the strongest stocks in the market. Bulletin stocks making new 52 week highs today were VRSN, XMSR, TXU, FFIV, ELOS, and VCLK.
HP and NTAP both reported super earnings after the bell today. These are two big cap tech players and this good news could off set the PPI number today and rally the markets tomorrow. Both of these stocks were up in after hours trading.
Google Flood Is Near
Google finally is starting to head lower almost as rapidly as it went up. There are many restricted shares that are still held by insiders and some of those restrictions began to lift today. 39 million shares were released and these will make it to the float soon. The stock sold off over $12 today on 2X average volume. If you and I were employees of Google and had several thousand (or in the case of executive officers several hundred thousand shares), I think we would all be selling to lock in some profit. Google is still a highly speculative stock that could still go up, but the odds are not in favor at this point with all those shares coming to market. When these shares flood the market, there will be too many shares for the demand. This selling pressure will ultimately drive the stock down. GOOG is a very risky investment at this level. A trader's only stock if you have all day to sit by your computer and watch it. If that is not possible, I recommend leaving it alone.
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