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Wednesday, August 24, 2005
Market Recap
Before the opening bell this morning, the futures were down big and indicated to some people that the market was headed lower at the open but we knew better and were not fooled by these false readings. The market opened a tad lower but not nearly as much as the futures indicated it would and then quickly began to reverse and head higher. Buyers supported the market for most of the day. However, this buying turned out to be a head fake as sellers came in late in the day and took the indices down in a dramatic late day sell off. By the close, the DOW was down 84 points and near the low of the day, the NASDAQ lost 8 points after being up above the 2150 area at one point and is looking very strong. The S&P was also lower by 8 points and is looking like it wants to visit the 1190 area that we mentioned in an earlier commentary.
Oil closed at a new record high of $67.32 a barrel and seems destine to reach that $70.00 price that we predicted back in February. For those curious about when we made that call, you can review commentaries from February 22nd, March 6th and 20th, using the bulletin index link to the left and then use the drop down box to review all past commentaries by date. The $70 oil prediction was mentioned on those dates.
Folks, this market looks more and more like there is no fight left in the bulls. We will continue to look for strong chart patterns and when the market decides it is going to bounce, these strong stocks should be fine. Shorting stocks may be a prudent thing to do on any strength but not now, in such an over sold condition.
Part 2: Gauging the Market Trend
Investors have a tendency to believe that the market will rise (thus being bullish) and they have been right. Over the long haul, the markets have had an upward bias. Investors are more likely to make profits over a long, long period of time. When you look at a period of many years, prices are on the rise and any losses are minor and temporary. During the bull market, an investor can actively and confidently invest with a higher probability of making a return.
The above example is the macro picture over a lifetime of investing, the Warren Buffet style you might say. There is nothing wrong with that, I cannot argue with Mr. Buffet's success, however, what the average investor does not know is that Mr. Buffet, or any big investor with millions of dollars at stake in the market, is not going to just sit through a bear market and watch his millions evaporate. Sure they would not sell their stock, but I can guarantee that they would take some insurance out on those stocks in the form of buying “Put Options” or by selling “Call Options”. This strategy protects their investment during a market down trend. Main stream media does not inform the average investor about that strategy, they just want you to know that Mr. Buffet never sells his stocks, no matter what market we are in. “He stays the course.” He stays the course alright, but using other investment strategies such as insurance to protect those.
I like to take advantage of market direction turns and instead of holding through three year bear markets, I will go in the direction of the trend. If you hold stocks through a bear market without buying Puts or selling Calls, the chances of you losing a lot of cash is much greater because stock prices are continually losing value and the end is not often in sight. Even if you do decide to invest with the hopes of an upturn (catching a falling knife), you will likely take a loss before any turnaround occurs. Most of the profitability in bear markets will be in short selling or safer investments such as fixed-income securities. You can also profit on the long side in the so-called defensive stocks, whose performance is only minimally affected by changing trends in the market and are therefore stable in both economic gloom and boom. These are industries such as utilities. These companies provide the necessities that people buy regardless of the economic condition and pay a good dividend while you wait.
There is no sure way to predict market trends, so investors should invest their money based on the quality of the investments. At the same time, however, you should have an understanding of long-term market trends from a historical perspective. Because both bear and bull markets will have a large influence over your investments, do take the time to determine what the market is doing when you are making an investment decision. Remember though, in the long term, the market has posted a positive return. I was joking with Mike a week or two ago and reminded him that, “since the year 1850, the stock market has been trending up” LOL. I will close by saying something that may sound like something the great Hall of Fame baseball catcher, Yogi Berra would say. If you were a bear in 1850 and were still alive today, you'd be dead... Doesn't that sound like Yogi? But so true.
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
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