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Wednesday, July 06, 2005
Market Recap
A hard reversal down for stocks today with yesterday's gains completely erased. The indices continue to trade in a trading range and we have updated charts of the indices tonight so that you can see the range that we are talking about. Oil prices reached yet another all time high today capping $61.28. The DOW fell 100 points, the NASDAQ lost 10 points and the S&P also lost 10 points. Small cap stocks continue to outperform in this market and it is where you should be concentrating your efforts on for now. We have said plenty of times in the past that small cap growth stocks are where the money is made and they have been performing behind the scenes lately, while the larger stocks have lagged. This is evident by the Russell 2000 index chart that we showed last night. The Russell is at an all time high, while the bigger cap stocks in the DOW and S&P have lagged. Hence our strategy going forward will be to buy the small caps and short the large caps until the overall market starts to improve.
Do not get confused, small cap stocks are not necessarily inexpensive stocks. There is a difference between small cap stocks and inexpensive stocks. Just because a stock is trading below $7.00 does not mean it is a small cap. Some examples are: NT, SUNW, LU and SIRI. These are not small cap stocks, even though their stock prices are low. For instance, a stock like HANS, an $88.00 stock, is a small cap. LCAV, LSCP and BMHC all trading above $40.00 are all small cap stocks. This brings up a good point and a good time to explain the difference between small and big cap stocks.
Big Cap or Small Cap
You often hear companies or different mutual funds being categorized as small cap, mid cap or large cap. What do these terms really mean? I like to think of it as a gage to assess a company's risk. In other words, the smaller the company, and the riskier the stock is. Market capitalization is the market value of a company's outstanding shares. The market cap is the stock price, multiplied by the total number of shares outstanding. Small-cap stocks are often cited as good investments due to their low floats, low valuations and potential to grow into big-cap stocks, but with potential gain comes much larger risks. The definition of small cap has changed over time. What was considered a big cap stock in 1980 is a small-cap stock today. Tonight we will attempt to define the difference between the "caps".
The term “cap," refers to market capitalization and is calculated by multiplying the price of a stock by the number of shares outstanding. This represents the market's estimated value of the company; however, it should be noted that while this is the common conception of market capitalization, to calculate the total market value of a company, you must also add the market value of the company's publicly traded bonds.
Big cap stocks refer to the largest publicly traded companies like GE, IBM, and MSFT and so on. These are also called Blue Chip stocks. "Big" has also been believed to have less risk while "small" usually means more risk, but, as evidenced by Enron and World Com, there is risk in even the biggest caps.
The definition of big cap and small cap differ slightly between the brokerage houses and has changed over time. The differences between the brokerage definitions only matter for border lined companies. The classification is important for borderline companies because mutual funds use it to determine which stocks to buy. Some mutual funds are limited to the stocks they can buy due to this market cap classification.
The definitions:
Big Cap - Market cap $10 billion and greater
Mid Cap - $2 billion to $10 billion
Small Cap - $300 million to $2 billion
Micro Cap - $50 million to $300 million
Nano Cap - Under $50 million
These categories have increased over time along with the market indexes. In the early 1980s, a big-cap stock had a market cap of $1 billion. Today, that size is viewed as a small cap.
The big-cap stocks get most of Wall Street's attention because that is where the lucrative investment banking business is. However, they represent the minority of publicly traded stocks. The majority of stocks are found in the smaller classifications. Below is an approximant break down.
Mega Cap: 10
Big Cap: 375
Mid Cap: 800
Small Cap: 1900
Micro Cap: 2000
Nano Cap: 1700
Major stock indexes also have the big and small label. The DOW has only big-cap stocks, while the NASDAQ was at one time comprised of only small cap start-ups. Since 1990, things have changed on the NASDAQ. Since the tech boom, the market caps of the different indices vary and overlap. The labels big and small are subjective and change over time. Remember, big does not always mean less risky, as noted above, but the big caps are the stocks that are most closely followed by analysts so they should be much less speculative and are therefore considered safer investments.
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...
Thank you all for voting.
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