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Wednesday, January 19, 2005
Market Recap
So much for the follow through buying we thought there would be after yesterday's nice rally and great news from IBM and YHOO after the bell. Today was a whole new ball game with sellers stalling the rally and spoiling the brief party. The Dow lost -88 points while the NASDAQ took a huge -32 point loss and the S&P gave back -11 points. It looks as though this may be shaping up to be a very frustrating first few months of the year with the market going nowhere. The dreaded trading range that haunted us all of last year could be showing its ugly face again. I am not giving up on the bull just yet, it is too early in the year to be thinking that way, but we have to look at what the market is giving to us and so far, and it is not much. Longer term charts of the indices are still intact and remain bullish; it is the short term that we want to see become bullish. Right now, I am afraid we cannot report any bullish signs in the near term.
Housing Starts
In last night's commentary, I thought it would be appropriate to mention housing stocks on the eve of the release of the new housing starts number due out this morning before the bell. As expected, these numbers were terrific and housing stocks responded well to that number today. These stocks are “going through the roof” even as the market seems to be faltering. As stated last night, the home builders are one of the strongest sectors in the market now. These leaders are on a roll and have further to go to the upside. I think they can make a nice run-up ahead of the February Fed meeting on interest rates. They will probably be subject to brief profit taking after the Fed raises rates by .25 again, but for now, they are about as safe a bet (if there is such a thing in this market) as you can get in the stock market.
Here is an article on the so called “housing bubble”. I do not think there is a housing bubble but you be the judge:
http://money.cnn.com/2005/01/18/news/economy/housi...
Possible Short Positions
Someone requested I list some possible short candidates to hedge against their long positions. Although I am not recommending shorting at this time, here are a few stocks I think are headed lower. These stocks should do well on the downside even if the markets bounce. All of the below stocks are weak technically so even a stock market rally should not reverse them to the upside.
Bear flags: GNTX, GSP, JBLU, MOGN, NBIX, and ONXX
Bearish engulfing: MXIM
Closed near or below support: SLAB and TARO
50 SMA resistance ahead: TEVA
Earnings Today
Earnings reports from a couple of big cap tech stocks after the bell today may induce more selling at the open tomorrow. EBAY and QCOM released earnings after the bell today and EBAY missed analysts' over zealous expectations by 1 cent. EBAY's profit and sales rose 44%, yet the stock is getting hammered in after hours because they failed to meet the analysts' lofty expectations. We have stated many times before that the analyst's purpose is to make the firm they work for some money. They could care less about the small retail investor. I do not invest in companies based on what analysts say about the company. Real investors look inside the company and invest based on sound fundamentals, earnings growth and other key factors. The smart money does the research themselves and would never listen to an analyst.
Unfortunately the majority of market participants are not the smart money. The majority of investors listen to the few analysts covering a particular company. This is why stocks react the way they do even though companies like EBAY are firing on all cylinders with record earnings and growth. EBAY is the internet leader with a great business modal that is unchallenged by competitors. It has a terrific brand name recognized world wide, extremely talented management, and best of all it is still growing year over year. But some would rather ignore all these facts and dump the stock because it made .33 cents a share this quarter instead of .34 cents.
So this is why the market is irrational. It is irrational because there are so many irrational people participating in it. The good news is that it is because of these irrational market participants that we are able to consistently make money in the markets. Fear and greed control their trading while the calm emotionless smart money take advantage of their every mistake. Trading is a vicious game of ruthless winners and terrified losers.
Tip
Don't 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...
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