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Monday, July 04, 2005
Market Recap
We hope everyone had a wonderful, safe 4th of July holiday. It is a time to relax and hopefully to think about this country and what it means to us and our families. We are truly blessed to live in this great land of freedom. Thank you to all of the men and woman of the U.S. armed forces who stand guard to make our freedom possible.
Now that the holiday is over, we need to get back to the realities of the stock market and the direction it may be headed. Friday, traders left early for the Hampton's as the markets traded on very thin volume for most of the day. The DOW was up 28 points, the S&P gained 3 points and the NASDAQ was flat. Last Friday was the first trading day of the month and quarter and normally, we would see heavy volume but because it was the day before a long holiday weekend, the volume just was not there. Tuesday should see some good volume as it will be the first real trading day of the month/quarter.
The charts of the indices look weak and since we are entering a historically slow period for stocks (the summer months) we may not see much buying demand and as a result, stocks may drift lower. We just do not know at this point. Because of the uncertainty, we have taken some short positions to hedge our long positions. If you cannot short stocks, you may want to raise some cash. In light of a possible down market coming, we thought that we would take a look back at what happened in the last bear market and remind everyone of what could happen when stocks turn south. We just never know how low they will go.
The Year 2000, a Look Back
If you had money invested in the stock market in the year 2000, chances are you are one of millions of people who lost anywhere from 50 to 80% of your portfolio value. The three year bear market from 2000 to 2003 was one of the worst in history, rivaling that of the 1929-1934 crash and bear that started the great depression. We did not live through the 1929 crash but we did see first hand the 2000-2003 bear market and as they say, every generation of investors has to suffer through at least one devastating stock market crash. The bear comes around often but the magnitude of the above mentioned bears do not come around but once or twice in a life time. I want to bring up a little history tonight so that we can reflect on what happened so we never become complacent in our investing and so that we will always respect the power of the market. The chances of it happening with that magnitude again in our remaining investing lives is slim to none however, it will happen again in the future because it happens to every generation of new investors. If you have children or grand children that are interested, or will be interested in the stock market, you owe it to them to make them aware of this devastating horror that could possibly create financial ruin for them. Unless you make it a point to learn what happened, what went wrong, and why and pass it on to them, the chances of history repeating itself is very good.
The Charts Forecasted it All
The mistakes made in the 2000 bear were the same mistakes that new investors make in every bear market cycle, whether it be a mini bear or a roaring stock market crash. The degree of portfolio damage is the only difference between the two. The mistakes are the exact same that have been made over and over again throughout the history of the market. During the 2000 bear market, what 98% of investors did wrong was that they relied on their opinions of what the market would do rather then following the market and listening to what the market was saying. The charts said it all, but people were either to stubborn to want to listen or they were just innocent victims who got in at or near the top because of all of the media mania about the roaring bull that was on every cover of all the financial magazines. This fact alone was a very good sign that the great bull market run was nearly over. When the average person on the street starts to want to invest in the stock market, a top is near because when everyone knows, it is too late.
Be a Market “Yes Man” at All Times
The economy at the time was excellent. The market was roaring and everyone wanted in. People were relying on favorable economic data as reassurance that the market would continue to flourish. But using the economy to predict stock market direction is a backward approach. The economy does not lead the market, the market leads the economy. To be successful in the stock market, you have to observe what the market is doing and block out all of the noise you hear on TV and in the news. You also have to agree with the market at all times. You cannot argue with it, you must be flexible and change on a dime. You might say that you have to be a “yes man” to the market if you want to succeed. This is tough for some people because ego's get in the way and they do not want to believe that they are wrong when the market moves against them.
You must agree with the market 100% of the time, no matter which direction it is going. If you thought last week that the market would go up and it did, but this week its going down, you have to suddenly change your opinion, you have to realize that you cannot keep the same thought you had last week. What the market did last week is irrelevant and never worth defending once the direction has changed. If you are unable change your thinking, you are arguing with the market. Do not worry about being consistent in your views of where the market is headed. You cannot afford to be consistent because the market is not consistent. The market does not care who you are, what you think, want, or hope. It does not care how much money you have in it. You must look beyond your emotion or feelings and know the reality. The reality of what is actually happening in the market while it is occurring. Once you acquire this skill, you will have developed something that most investors will never have.
The year 2000, Part 2 Tomorrow
Tomorrow, we will continue with part 2 of this commentary with a look back at some of the horrifying losses suffered in the stocks of some of the greatest companies in the history of the stock market. We will look at what excuses that people made for not selling and explain why even a diversified portfolio was not safe.
STHQ Chart Index
If you go to the chart index in the left side menu, you can review and study charts that we have annotated for each stock listed in the past.
For New Members
For all of the new members with us, please make sure to read the link “How to use Bulletin” at the bottom of the Bulletin page on the website. It is critical that you know how to use this trading tool before trying to trade the stocks mentioned. The effectiveness of your trades will diminish if you do not completely understand how the information is presented.
Earnings Calendar
We have added the earnings link for each stock on the bulletin. To access the link for earnings, you can either use the link below or click the link on the bulletin for the corresponding ticker. Click the online bulletin in the left side menu for access to the earning calendar for each stock listed. It is not recommended to hold a position through earnings. You can always buy the stock back after the dust settles.
http://www.earnings.com
Stockcharts Listing
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http://stockcharts.com/def/servlet/Favorites.CServ...
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