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Tuesday, November 15, 2005
Market Recap
Well it had to happen, we knew this strong uptrend would not go without a slight pullback and it happened today on the Nasdaq. The Dow lost 14 points, which is not much at all and cannot really be called a pullback. However, the Nasdaq fell 14 points and held the trend line and initial support level of 2083. This can be considered a healthy pullback. The S&P fell 4 points as well. The Nasdaq was the hardest hit of the indices; many of the stocks that were leading this market higher are on the Nasdaq fell back today getting the rest they needed. Now we can start to look at buying some of these stocks at support levels, because this is a buy the dip market now until proven otherwise.
The Floaters, Float On
Continuing our commentary from last night, I would like to make some additional points about “high priced” stocks. There is a song from the 70's called “Float On” by a group called “The Floaters” (if you can believe that LOL). Of course this song has nothing to do with stock trading but it can still remind us of a very important point in trading. I am talking about the word “float” as it pertains to the float of a stock. The lower float stocks move because of supply and demand factors. The fewer the shares available, the hotter the stock will be once it gets on the radar and comes into play. The big cap stocks mentioned below are so over owned by big institutions that there is nobody buying them now. The institutions that want to own these stocks already own them. There is only the buying power of the little guys left to move the stock price up, and that is not enough. The institutions that want to sell these stocks do so at every price spike and that is why the stocks cannot and will not move higher.
Big Cap Stocks, Cap Sized
High priced stocks are high priced for a reason; you have to pay for quality and they have a lot less shares in the float. YHOO trades near $40 but has 1.42 billion shares outstanding. Stocks like YHOO have such high floats resulting from splitting their stocks that it takes awhile for the stock to move up $10 (or 20% in this case). GOOG has 280 million shares, almost 5 times fewer shares than YHOO, with a growth rate much higher than YHOO. Stocks with smaller floats move much faster than stocks with large floats. Hence the slow action in stocks like: CSCO, DELL, INTC, MSFT, ORCL, SUNW, and SIRI. This is why these stocks are not good trading vehicles; you just cannot get any meaningful movement to profit from them. I would rather buy fewer shares of a high priced, low float stock and get a 5 or 10 point swing from which to trade. Think of it this way: big cap stocks are too heavy and cannot “float” so they sink under the water. Low “float” stocks tend to rise with the tide and stay afloat.
GOOG vs. YHOO
For those of you who think GOOG is too expensive now, let's compare GOOG (the new leader) to YHOO (then old leader). If YHOO had never split their stock, the price of the stock today would be $800.00. Is that too expensive? It makes GOOG look cheap here, especially considering GOOG is growing much faster than YHOO. The stocks mentioned above are yesterday's leaders. The market is now on to the new leaders. Higher priced, low float stocks that will make those 1000% moves up in the next few years and someday be the new over owned bloated pigs that the institutions will dump onto the average investor who is always late to the party.
GOOG's stock is under owned. The big money only owns 37% of the float. This is because it is not in the S&P or Nasdaq 100 yet. When and if, it becomes part of those indexes, it will have to be bought by all those mutual funds that have to buy it according to their rules. Once they have all bought, there will be nobody left to buy shares except the retail investor. This is when it will become over owned and we sell it. But what will the price of the stock be after all that buying? One final point on GOOG, there is only 3% of the float shorted. With such a low percentage, it tells me that there are no institutional shorts. And if institutions are not short the stock, you can bet it is not done going higher. We will talk more in-depth about the float in an upcoming commentary.
Stockcharts listing
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STHQ Chart Index
If you go to the chart index in the left side menu, you can review and study charts we have annotated for each stock listed in the past.
Earnings Calendar
We have added the earnings link for each stock on the bulletin. To access the link for earnings you can either use this 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
For New Members:
For all 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 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. |
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