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Monday, July 25, 2005
Market Recap
Stocks fell on Wall Street today as all three major indexes declined. Existing home sales were up 2.7% in this mornings report before the bell, indicating that the housing market is still strong. This, along with great earnings from AMX, could not boost stocks and the DOW lost 54 points, the NASDAQ dropped 12 points and the S&P fell 4 points. Oil prices were up again which may have had a slight effect on stocks. There has been relatively weak volume over the past couple of days and weeks and we would expect that to continue into the summer. More earnings are due this week as earnings season powers along. There are some stocks on the bulletin with great charts that we want to buy but with earnings just around the corner for some of these stocks, we just cannot risk being in them ahead of their reports.
GOOG is Gone, a Sad Day
Remember the rule, never hold through earnings. GOOG was an exception because I knew the earnings would be super. A company growing as fast as GOOG is not going to miss their estimates. They did not miss; they beat the consensus by 15 cents, 1.36 vs. 1.21 on a pro-forma basis. However, it was not reported this way on BSNBC. If you would check Thompson's first call, you would see that BSNBC was in error. They admitted their error the following morning but by that time, the stock had already recovered more than 20 points from its after hours low the night before. This offset what could have been a tremendous gap and run for GOOG, if it had been reported correctly in the first place.
The 1.36 made the number by a country mile. However, they have some rookies running the company and do not know how to release an earnings report properly, nor can they handle a conference call. The way they released the report was confusing and analysts needed to decipher some information in order to find out the real numbers. This is GOOG's managements fault for not making the report crystal clear. It is also their fault for not clearing up any confusion in the conference call. Frankly, I have a problem with their stance on not providing guidance and not making public appearances to talk up the company and provide investors some information about how the company is doing, as most other great companies do. I also think they should split the stock but they would not do that either. These are very important aspects that keep investors and Wall Street happy. This will only serve to hurt them in the long run, in my opinion. I still love the company and think the stock has a long way to go but now, there is no catalyst to launch it forward until the next earnings report or a possible announcement of an inclusion into the S&P 500. Without these things, the stock will probably just drift lower or try to form a base. We sold today for a 30% gain. As much as I wanted to hold it, we just could not keep it when it closed below the 20 EMA. This is the first time that the stock has closed below that line since we have been in the trade. We will buy GOOG back when it is ready again. Right now, it is a very tired stock.
Think in Percentages, Not Dollars
Often time's successful traders tend to lose respect for the actual value of a dollar. By this we mean, regardless of how much money you have, you must not lose sight of what each trade produces and the value of the returns, in relation to the capital used to produce those gains. Here is an example of what we mean. A very conservative trader with a $500,000 trading account may place a trade with $10,000 into a position. If this position gained 20%, they would have a profit of $2,000. They may not realize that it is time to take profits because looking at their bottom line; this gain is only fractional (less than 1%), in the grand scheme of things. While $2,000 is nothing when compared to a $500,000 account, it is still a 20% gain in relation to the money at risk in the trade and should be watched closely for an exit plan to lock in this the profit. This person would not have a problem with locking in the profit, if they were to look at trading from a percentage standpoint rather than a dollar point of view. This allows you to always calculate gains and losses with consideration to the amount of capital at risk for any given trade.
Of course, in the example above, this individual is more conservative with their capital than they should be. If they were to risk 5% in each trade, they would have $25.000 in each trade instead of $10,000 (2%). Had they traded with 5% of their available funds, their dollar profit on the 20% gain would have been $5,000 instead of just $2,000. Those that risk 10% in each trade would have made 5X more, gaining $10,000 on this same 20% profitable trade. Always remember the percentage of the gains in relation to the money at risk. As you can see, profits can be substantially higher with just a little more risk taken.
As mentioned last night, we will soon be risking 10% of our funds in each trade instead of the 5% that we have been. I wanted to show this example tonight so that you could see the difference in dollars gained with just a little more capital at risk and decide if this portfolio shift is best for your trading style.
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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