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Tuesday, July 05, 2005
Market Recap
What a great day in the market on this first Tuesday of the month and quarter as the markets rallied with the DOW, the NASDAQ and the S&P gaining 68, 21 and 10 points respectively. But that was not the big story. The big story today was the small cap stocks. They powered forward with many of the stocks on the both our bulletin and our back-up watch list making very nice gains today. We had mentioned that many stocks were setting up on the charts and were ready to breakout and today, many of them did. Super one day gains for: VPHM, PAY, LCAV, KOSP, STKL, GEMS, CRGN, KOPN, REGN and ZHNE. All of these small cap stocks are all on our Bulletin. All of these great gains despite crude oil reaching $60.00 a barrel again today. Both small cap stocks and energy stocks stood out in today's action. Both the RUT and the IEX indexes made all time highs today. Even though the big indices seem to be struggling, there are super mini bull sectors within the overall market making good gains and we have had many of those stocks on our bulletin for you.
After a super day like today, we probably should not be bringing up the year 2000 but we have to conclude last night's commentary tonight. It is probably good to do so now anyway, so we do not get too complacent after a great day like today. Keep in mind; the charts of the major indices still have negative patterns so we are not out of the woods yet.
The Year 2000, a Look Back (Part 2)
This commentary is a continuation from last night. If you missed it, you can read Part 1 of this commentary in the Bulletin index on the left side menu.
The reason that most people lost money in the 2000 Bear market is because they did not know how to protect themselves from losses. Some people will say, “but I am diversified” well, we have got news for them. In a bear market, all stocks go down eventually. Not all at the same time, but they will eventually, and it is only when the last of the resilient leaders fail and lose most of their value, that the bear will go back into hibernation and a new bull will emerge. I remember leaders like NT, EMC and CSCO were the last of the titans to fall in the 2000 bear market. While almost everything else got slaughtered in 2000, these stocks were still holding up and were near their all time highs and stayed there until mid 2001. By that time, they finally gave in and collapsed. By October of 2002, they to had hit bottom. Even somebody with a diversified portfolio of one leading stock in each sector lost 50% or more of their portfolio balance by trying to hold on and refusing to sell. The only defense against a bear market is a move to cash or, of course, short selling stocks and buying put options.
Former Market Leaders
We have compiled a list of former high flying market leaders. This list indicates how much of a loss in price they suffered from their all time high to their lows as well as the time frame that it took to occur. Many of you may have owned some of these stocks. If you sold and cut your loss when they started going down, congratulations. You may have lost some money, but you did not lose as much as millions of other investors did. Remember, the best offense is a great defense and the best defense is a tight stop.
AOL lost 91% in 2.5 years
T lost 83% in 3.5 years
AMZN lost 95% in 1.7 years
AAPL lost 86% in 9 months
CC lost 91% in 3.5 years
CSCO lost 90% in 2.5 years
GLW lost 99% in 2 years
EMC lost 96% in 2 years
F lost 83% in 3 years
GE lost 65% in 2 years
GT lost 96% in 5 years
HD lost 71% in 2.7 years
INTC lost 83% in 2 years
JDSU lost 99% in 2.5 years
JPM lost 77% in 2.5 years
LU lost 99% in 2 years
MU lost 93% in 2.5 years
NXTL lost 97% in 2.2 years
NT lost 99% in 1.8 years
ORCL lost 84% in 1.7 years
QCOM lost 88% in 2.5 years
SUNW lost 96% in 2 years
TXU lost 86% in 7 months
ERON lost 100% bankrupt
WCOM lost 100% bankrupt
KMRT lost 100% bankrupt
Diversification is Not the Answer
There are many more stocks that lost over 90% of their value but we listed these because they were all market leaders in their respective sectors. They were the kings but even the leaders can not last when the powerful forces of a big bear market hits. Somebody who had a diversified portfolio of 12 leading stocks in different sectors like GE, GT, JPM, TXU, INTC, CC, F, HD, CSCO, JDSU, T, and EMC would have lost an enormous amount of money in the bear market of 2000. These are all still great companies but they will never lead again. The buy and hold investor will never recoup their losses waiting on these stocks to return to all time highs. Some of these former leaders will never be leaders again, their companies have grown too big and the stocks move too slowly. Most will never again see their all time highs and if they do, it will only be a slim few and it will take years, if ever, to get there. There is no such thing as a safe stock. Even the stocks that everyone thought were safe blue chips were filled with scandal and fraudulent book keeping and eventually went bankrupt.
Do Not Make the Classic Excuses
Diversification is not a realistic fool proof way to safe guard your portfolio, as shown from the above list. The only safe protection you have is to get out of the way when the avalanche strikes and it all comes tumbling down. Stop loss orders that get you into cash serve that purpose; they get you out of the way fast. You are now safely on the sidelines, watching it all flow past you like the rush of a tremendous raging river. Do not be one of those investors that argue with the market and get swept away or become oblivious to what is happening around them. Some stubborn people were just in denial. They had excuses for their stocks lack of performance but if they had only looked at the charts of the indices, they would have seen that there was no chance. Not a single stock could have withstood the downward pressure that was being forced on the indices at the time. Looking at the charts of the indices it was obvious, there was no other choice but to get out of the market and get out fast. There were so many excuses from so many people as to why they were not selling, maybe you have heard these to, or regrettably, maybe you even used them at one time.
“I am a long term investor; I am not worried about these corrections”
“But I am in it for the long haul, the market always comes back”
“There is nothing wrong with the company's fundamentals; the stock should not be going down”
“It is just a pullback, it always recovers”
“My broker says stay the course”
“I loved it at $50, I love it even more now that it is at $20” (I wonder if he still loved it at $5.00?)
“I have lost 50% in this stock, it cannot possibly go lower”
“I cannot sell now; I have already lost too much”
“I am still getting a 3% dividend” (even though the stock is down 50%)
And last but not least
“It is not a loss until I sell”
The Only Opinion You Need is That of the Market
If you listen to the so called experts on TV, you will hear them insist that it is still a great company and now that it is down several points, it is a buying opportunity. Please do not listen to them. This is just their opinion. You have the opinion to, it is your money. Your opinion should be based on how the market is acting at the time and what the chart of the stock you own is trying to forecast. There is really only one opinion we need to be concerned with and that is the opinion of the market itself.
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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