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Monday, January 17, 2005
Market Recap
A welcome change of pace on Friday as the markets ended the week on a positive note. All 3 major indices managed to stay green the entire day and closed up near their highs of the day. The Nasdaq finished the day higher by +17 points. The Dow gained +52 points and the S&P finished higher by +7 points. The good news is that volume was above average, which is an indication that a bounce may be in progress, more on this subject later. One positive piece of economic data was the core PPI number for December released before the bell that came in below estimates indicating that inflation for the time being is not rising as quickly as thought. There were no significant earnings releases on Friday making it a relatively quiet day on the news front. This will certainly not be the case next week as Tuesday is the start of 5 solid weeks of earnings releases so fasten your seatbelts!
Do not forget to check your short-term holdings and know when those companies 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...
Even though Friday was an up day the recent market action still supports our current “Cash is King” mantra. If you remember the markets closed at their lows on Thursday, which usually means that there is more weakness to follow. The exact opposite occurred. My point is that the markets have been bouncing around day to day making it very difficult to enter stocks without getting stopped out. Yes, we have been expecting a bounce so an argument could have been made on Thursday to buy the weakness. However, the other side of the argument is that the weakness since the start of the year has been on above average volume. When the market is sending mixed signals it is sometimes best to just step aside until the storm calms down.
Bounce Time?
I just got through talking about how cash has been the preferred stock to own lately. However, after spending the entire weekend studying the charts of the indices and the charts of individual stocks, I do believe it is getting close to the time that we should start entering some selective long positions in anticipation of a bounce. You will see in the chart of the Nasdaq that there is trend line support and short-term fibonacci retracement support just below the current level. The Nasdaq is currently about 25-30 points away from the levels that I have identified in the chart, so we may see some weakness prior to the bounce. It is always difficult to time a bounce exactly so we will have to continue to take it day by day. As I have mentioned many times before when entering positions in anticipation for a bounce, we need to be very selective on the stocks we buy and our entries need to be as close to support as possible so that tight stops can be used. Remember that the down volume since the start of the year has been well above average, so even if we are able to take advantage of the anticipated bounce, tights stops will be used and I will not be hesitant to lock in profits if a trade moves up quickly. A quick review of our recent bounce play trades and you will see exactly the method I will continue to use until a market reversal is confirmed. Our confirmation of a reversal will be a close above the 9EMA on above average volume.
“Hybrid” Investments
We are always talking about how trend watching is a key factor in trying to determine the next hot sector. Gas prices are still quite high, and not exactly looking to take a huge dip any time soon. Every week, we see oil prices staging a recovery, or declining but only slightly on higher reserves. The average consumer probably has not given much thought in past years to hybrid technology. In fact, most consumers balked at the idea. Hybrid engines were far less powerful than their gas powered cousins. They were something of an anomaly for the auto world. “Cool” technology but not enough power or reliability to really turn into a market power. It looks like that is starting to change.
http://money.cnn.com/2005/01/12/pf/autos/autoshow_...
I think that 2005 is going to be the year that the world is really introduced to hybrid technology. Detroit has traditionally shied away from anything labeled as “hybrid”. The Japanese have been looking at this for years now. With gas prices so high, Detroit is finally beginning to take a serious look at this “new” technology.
Oil companies have traditionally been very tight with the auto manufacturers. I think this is partly why hybrid engines have taken so long to develop. That is all starting to change. Consumers are demanding ways to cut their gas purchases. Foreign manufacturers are not in the back pocket of the oil companies, so there is little restricting them from bringing this technology to the table. Detroit has started to realize this and is going to have to react in a hurry. The US manufacturers are already well behind the curve. We have seen massive discounting on new models, just to get people in the door. Unless they react, the hybrid engine is threatening to take even more market share away from them.
Fuel cell companies have been doing fairly well in 2004. We saw a few break out as they announced deals with companies like Honda. Expect 2005 to be a very hot year for this sector. Hot enough that we will need to pay particular attention. This sector might be one where we grab several stocks for our long-term portfolios. The strength is building in the sector, and news like this is going to add even more strength.
Important Reminder:
The markets are closed on Monday January 17th in observance of Martin Lurther King Jr's birthday. The bulletin normally published on Sunday will be published on Monday morning.
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