Stocks, Lies and Videotape
Last week, after being gored like a rodeo clown that was one step too
slow, my mind went to something Ray Liotta said in Goodfellas that has always stayed with me. He said: “The way I look at it, every once in a while, everyone’s gotta take a beating.”
Let there be no question, those who were net short took heavy beatings. Part of being a successful trader is being able to maneuver at times when it appears your entire world is collapsing around you. It’s being able to eliminate emotions and be a technical trading machine. On Thursday afternoon, late in the day, I looked the Bull square in the
eye…he blinked.
Those of you who tuned in to Dr. J’s weekly Webfn.com show last Thursday afternoon
(in which I am a weekly guest) saw me say that I was getting heavily short tens of thousands of shares of
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PowerRating) at the end-of-day highs. Those trades have already yielded returns of 10 points on AMAT, 20 points on CHKP, and 12 points on JNPR. So, for the message-board rats that enjoy disrupting our happy TM family rather than adding to it, don’t cry for me, Argentina. The G-Man and his posse are doing quite
swimmingly, thank you.
I have heard from literally hundreds of you who have sent me very positive emails
over the months. Thank you all, again. I hope that most of you can admire the fact that I work hard after a draining trading day to express my feelings, thoughts, and analysis with you. I’m not like many other guys who continually straddle the fence with,
“The Market is poised to go higher and in the event it should fail to go higher it should then go down.” Nice. Then, better still, after the market breaks in one direction or another they come out and say “See! I told ya so! I told you it was poised to go higher!” Yeah, whatever.
I lay my neck on the line every single day for my readers and I do so as
a professional who isn’t afraid to be wrong. I have very strong opinions about the market and I am not afraid to express them because I think everyone needs to be presented several conflicting schools of thought in order to make better decisions. The truth is, we all are wrong at times. The key is to never stop being able to evaluate new opportunities for profit. Regardless of what happens to any one of us this evening, the market will still open tomorrow, and again the next day.
Now to the markets.
More layoffs, more earnings disappointments and more refusals to provide guidance for the rest of the year end 2002.
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PowerRating) announcing that they will possibly “write down” $40 Billion (yes, with a “B”) in “good will.” Do these things a bottom make? Just as we are promised things won’t get worse, they get a lot worse. The semiconductor book-to-bill ratio came in with the worst reading in ten years, with bookings slowing at the second-fastest rate ever. CNBC was quick to march out
Jonathan Josephs this morning to defend his admirably timed upgrades last week.
(I couldn’t help but notice that Mr. Josephs looked like a tranquilized poodle getting his summer clipping in the way he responded to the
interviewer’s questioning.)
All this before the market even opened. Next up, the surprisingly negative consumer confidence number, which came in at 109.2
vs. 1160.9 in March. And, since job security can clearly be called a major factor in consumers’ spending habits, the news that JDSU is adding another 14,000 job cuts to the ever-growing corporate layoff announcements signals the US consumer is probably putting
his/her wallet away for a while. Perhaps you can see why people like me are not so certain that the worst is behind us.
Interestingly, just as layoffs had previously been concentrated in the manufacturing sector and are now spreading extensively into the service sector, we are seeing a same deterioration in the manner in which consumer confidence is decreasing. Remember, the “ignore reality, let’s just print easy money” crowd has been arguing that although the manufacturing sector has been mired in recession for a few months now, it was the services sector and namely the consumer that was going to power the U.S. economy
higher. We are seeing this argument deteriorate before our very eyes as each day holds the promise of thousands of more layoffs from the service sector that was promised to remain immune
to the economic downturn.
Further, these same miscreants have been arguing that although consumer confidence has been weakening (at a historically fast rate, may I add) that strong automobile and home sales would continue to prop up the economy. Lie #2 (see previous sentence) is quickly fading as well.
Goldman Sachs announced a downgrade (no, that isn’t a typo) of the entire retail sector today, citing a negative potential for further share price appreciation. Naturally, I was shocked by this news. In addition,
Barron’s (online) reported that key insiders at Federated Dept. Stores
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Titanic? You don’t say.
Let’s see…we were shorting
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Remember, Costco is a discount retailer. Hold on a second, aren’t discounters the ones that are supposed to get through economic malaise without too much damage? Plus, when is the last time you heard a discount retailer talk about energy costs adversely affecting bottom lines? Along comes Merrill Lynch with a downgrade on Costco —
hey, thanks for looking out for us, Merrill!
As far as earnings reports go, I honestly do not have the stomach to even talk about firms like JDSU that won’t even provide guidance for 2002, much less the rest of this calendar year. Last week, the JDSU news debacle would have ignited a monster
rally. Today, the market wasn’t able to shrug it off. What a difference a week makes. Why even bother talking about
it?
Meanwhile, in “overweight gothic vampire” land, Hot Topic
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Technically, the stock has certainly topped at a 3
std. dev. move up to the $33+ area, but may certainly do anything it wants at this stage of the game. Remember, folks, you can’t control news. All you can do is react. I’m almost relieved that the manipulation of the stock will now end because the Wall Street “hot” money (pun intended) will now leave the stock as the news is now out in the open.
Let’s look at the major
indices.
An analysis of the Dow certainly demonstrates that the initial area of support is holding. Should the Dow fail at
its first support level, there are underlying support areas beneath it. Chances are, before this market truly carves out its
“bottom,” that these areas will be visited, if not violated.
The Nasdaq also appears destined to test last Tuesday-Wednesday’s gap open. Evaluating just how much of the gap the index will close before assumedly finding support will certainly speak volumes about the
market’s underlying strength. With the Nasdaq Composite’s down volume again leading up volume today by a ratio of 3:1 (remember, yesterday’s was almost 7:1), it doesn’t seem like there is much buying going
on on the way down. Is there a magic level we need to reach before the bulls jump back in and buy recklessly again? I’m not sure, but we are about to find out.
SHORT WATCH: Retailers, brokers, banks, and biotechs look very weak. It may be too late to get any more movement to the downside in tech as we are nearing support from last weeks gap area. Be quick to take profits in case the party starts again, however.
LONG WATCH: Virtually no strength of appreciable nature to be found in the markets today. It appears the entire world will be ready to buy tech again with both barrels blazing once enough of a retracement has occurred, so why shouldn’t we? The insane crowd’s favorites are :
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with semiconductors.
P.S.: I heard a segment on CNBC afterhours about the effects the economic slowdown is having on the pornography industry. During this segment, a spokesperson for the porn industry said they are working on a DVD that will give the viewer an option to “join the action” in which the customer can enter a virtual world within the porn scene and actually participate. First of all, I want all of us to research any companies that have the slightest association with this technology. Second, if this technology comes to fruition I would like to hereby request
two to three weeks’ leave from the editor and owners of this website.
Have a great night.
Goran