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Monday, January 10, 2005
Market Recap
It was another uneventful day in the stock market today. Even though the markets were up, there was no real conviction on the buy side, and stocks that looked good early in the day failed to hold their gains into the close. The six day losing streak for the Nasdaq ended today when it managed to squeak out an +8 point gain. The Dow was up +17 points and the S&P gained +4 points. Alcoa, a big Dow component, kicked off earnings season today with a disappointment after hours today. They failed to meet estimates and this should weigh heavily on the Dow tomorrow. If this is any indication of what is to come, I am glad we are sitting at 95% cash in the TWPD portfolio. INTC and AAPL report soon and should sway the direction of tech stocks for at least the next few days.
Bulletin Watch list
There are less than 20 stocks on the bulletin right now and there could be even less if I removed some stocks that have damaged charts. I have left some that otherwise would be removed today because the market is over sold and due for a bounce. If these charts do not start to repair themselves soon, we will have to remove them as well. I am giving them a chance to bounce, but it is not looking good for some of them. I urge cautiousness as we are entering earnings season. Our cash position is looking very good and we are sticking to our 2005 saying, “If a stock is not going north, there is no reason to own it”. We will not hold stocks that are going down or even just sitting still. If it is not going up, sell it and move on.
More Mega Mergers
Our prediction of big mergers and acquisitions continues to come true as there are more big mergers in the works. Today, Wells Fargo and Barclays announced they are in talks to merge. Movie Gallery announced it is buying Hollywood Video. There was speculation that BlockBuster was going to buy out Hollywood Video, but Movie Gallery ended up taking the prize. Alltel announced they are buying Western Wireless. Comcast is on the acquisition path also. Rumor has it they have a big buy out package in the works, and they also announced they are moving into the VoIP space. Look for some smaller VoIP companies that may be possible buyout candidates, they may be good plays just for the gap up on the news. We should never invest in a company simply because they are a buy out candidate, but trading and investing are two totally different animals. If I am trading, then I can buy a stock if I think it is a good candidate for a buyout and sell it on the day when the deal is announced. This is all speculation of course, we do not know ahead of time if a company will be bought out. We either need some inside information (like some industry insiders do) or we need to have a little dumb luck.
Airline Sector
Last week, Delta announced they are cutting fares by up to 50%. They are also cutting some of the fees associated with getting tickets. Delta is doing this as part of their overall restructuring in an attempt to avoid bankruptcy and the complete failure of the airline. I have been avoiding airline stocks for a long time. The whole sector is in turmoil and I do not know why anyone would invest long term in these companies that cannot seem to make a profit no matter how much they charge for a seat.
Usually when one airline cuts fares, the rest follow. When one carrier changes its pricing structure, often the others follow the lead and do likewise. This new pricing reduces the revenue for the whole sector as the other airlines follow in the price war. I am not sure what a price decrease is trying to solve. Every plane I have traveled on lately has been packed, with no open seats. If they are selling every seat, then why do they need to decrease pricing? It would make sense if the planes were not full, then you sacrifice price to sell the seats and fill the planes. If they pack more planes, even with lower priced passengers, they will make up for the empty seat at the higher price that did not sell. I have not traveled on a Delta flight, so I do not know if their planes are filled, but if they are, then the price cut does not sense to me.
What is interesting about the whole airline sector is not so much the stocks that are doing poorly; they are expected to do poorly. However, the one company that is doing very well is Southwest Airline; it is the King of the airline sector and should be. They continue to be profitable and it is the best stock in a very poor sector. They are known for their no frills flights, but also for their deeply discounted fairs. I do not know their secret but I would like to know how Southwest can be profitable while all the others are in the red year after year. They are running against the grain of the entire sector and Southwest is a very well managed company. The last time we did an airline piece in our commentary I said if I had to pick one airline stock to buy, it would be Southwest. Although I am not saying I plan to buy any soon, I still stand by that comment. Did I mention the last plane I traveled on was South West? The plane was full, maybe that's the secret.
Tip:
Don't forget to check when companies in your short term holdings are reporting earnings. Holding a stock through earnings is risky and I do not recommend it. You can always buy the stock back after the dust settles.
http://www.fulldisclosure.com/earning.asp?date=200...
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