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Sunday, February 06, 2005
Market Recap
A very strong day in the markets on Friday, despite a disappointing jobs report before the opening bell. The markets were strong at the open and never looked back, closing near the highs of the day. The Nasdaq finished higher by +29 points, the Dow tacked on +123 points, and the S&P finished higher by +13 points. The jobs report ended up being a non-event, as it seemed the markets wanted to move higher no matter what the results were going to be. I had mentioned on Thursday that I felt the markets were going to continue their bounce, though I did not expect to see as strong a move as we saw on Friday.
Markets do not go straight up, so expect to see some profit taking after a nice one day run like we had. Consolidation, after a run-up, is always welcome and needed to ensure that the charts do not get overextended to the upside. Pullbacks also give us a chance to enter strong stocks at short-term support rather than chasing breakouts. The strength in the markets this week has certainly setup the charts of individual stocks, and you will see our watch list is quickly filling up with solid stocks that should provide us with some nice returns. The Nasdaq still has some work to do before we go back into full bull mode, so we still need to be cautious with our buys and be ready to sell if this bounce does not hold. As strong as the move was on Friday, the Nasdaq is still below its 50MA at 2108. The good news is that the Dow and S&P charts are looking very strong and it will take some extended weakness in the Nasdaq to drag these 2 indexes down with it. I had mentioned the Dow and S&P, based on their strength, could possibly lift the Nasdaq and at this point this looks to be what is happening.
I will be trimming down our list of shorts. I will keep only the ones that are below long term trend lines that should fall regardless of the market direction. As I have mentioned many times, profits are much harder to come by shorting stocks. Especially when the markets are mixed and not in full bear mode. If the market continues its bounce, the short list will eventually go to zero as there is no reason to try and squeeze out gains on shorts, when there is money to be made on longs.
A House Full of Sox
I have talked many times about how the Nasdaq's long-term success is very dependent on the success of the SOX index. Friday, we saw this index move higher by over 4%. It was clearly the leader of the rally and this index showing this type of strength is very good news for the Nasdaq. The SOX managed to close above the 50MA and is now sitting just below big resistance at the 200MA and the 425 price level. I have an updated chart of this index tonight.
The other sector that continues to defy gravity is the housing sector. I mentioned recently, how this index is a market leader and also showed charts of the individual homebuilders. I have some updated charts of these stocks for you tonight. Low mortgage rates and a high demand for housing continues to fuel these stocks as companies are handily beating earnings estimates and more importantly continue to raise guidance for the upcoming quarters. These stocks will not move up 100% overnight, but they are a great place to park some cash for some very nice gains over time.
Teenage Stock Picking
CNN is jokingly calling this a newsflash. It is one of those obvious things in life that everyone is aware about, but no one picks up on the reality behind the story. Well, almost no one. We talked about this nearly a year ago, and have subsequently mentioned it several times since then.
http://money.cnn.com/2005/02/04/news/midcaps/teen_...
It turns out that teens spend money. Today's teenager has more disposable income than ever before. Couple that with a tough retail market, where discounting still wins the day, and you have got a massive segment of the population with a ton of buying power. Teens have traditionally been the new trend starters. They cannot always afford some of the high end trends, but there are enough trends out there that teens start. Enough, that we need to pay very close attention to some of the companies mentioned in the article. As you can imagine, most of those companies deal with clothing. I do not know of any teenage girl that is not completely enthralled with the latest fashion trends in clothing.
Teenage boys use to be the last place you would look to, to find a fashion trend. These days, that has all changed. Boys too are now being targeted by marketing campaigns, and their thoughts and views can have a very heavy influence on fashion trends. Boys, traditionally, would be more tied to trends in gadgets. Sporting equipment, games, and gadgets are the areas that I would look for trends, when you are looking at your teenage son.
It really is time to start looking at your children again, and see what they think is hot. We are gearing up for spring and summer clothing runs. The latest trends in clothes are hitting stores now. What the teens end up buying and wearing will influence earnings reports in the coming months. So when your son or daughter is asking you for money to buy clothes, be sure to have them fill you in on what specifically they are buying. They will buy the clothes now, and we will likely end up buying the stocks soon.
Please tell a friend about our service. As always, thank you for your support past, present and future! We will see you Monday evening.
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.
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