The Days Of Flying Pigs
What do the lunatics do
after they have taken over the asylum for a while? Here’s
a hint: back in the Nasdaq bubble days of ’99-’00 when the lunatics
pushed up all the "red hot"
sectors they could and couldn’t move them anymore,
what did they turn to? (This event, by the way, marked that the end
of the bubble was imminent.)
Why…they started buying the bulletin board penny
stocks, silly!! And that is exactly what we got yesterday. After they
pushed
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RFMD |
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the past three weeks, after they pushed
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JNPR |
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120% and
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CIEN |
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it…the decimated Internet and tech
stocks that were down over 90% from their
highs. Names which are still listed on the Nasdaq but have fallen to
penny stock prices like
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EGGS |
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COOL |
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CMGI |
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ICGE |
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FMKT |
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VERT |
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ZOOX |
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etc., etc., etc. were
on fire. Guess what, gang, this is the definitive sign that this rally
is detached from the reality of current fundamentals. When the sideshow
freaks start doubling and tripling in
value over a few days, you gotta scratch
your head and wonder what is going on. Is this positive for the overall
market? Is this what reality has become? I think not, but it is clear
that many more people who have been buying these stocks have a different
perception of reality than we do. I guess time will show us which of
those people will get hurt and which ones will still be standing. The
market always clarifies things in the
long run…and the long run doesn’t mean
two weeks.
One of the recent favorites of
"breakout" players has been small-cap specialty
retailer Christopher and Banks
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from $25 to $40+ in two weeks, the
internals were not confirming this new high.
The chart below displays the RSI and Stochastic (two very basic technical
analysis tools) and their divergence from price action.
These charts are a perfect example of the mania
permeating the market at present.
Analysts are "finding" these little gems that have appreciated
many thousand percent in the past few
years and are now pounding the table to make
you buy them. Would you buy CHBS here based on the charts you saw above?
Would you even want to buy it for a daytrade in the middle of the day?
I definitely wouldn’t even think about writing a buy ticket on it because the
stock is like a Doberman that flunked out of obedience school…you never know
when it’s going to turn on you. But the "breakout" players
and the "value" players have taken to thinking they are now finding a
great bargain in buying
stocks that are virtually worthless and will go out of business,
but are buying them because they are comparatively "cheap" compared
to their bubble highs, or chasing
stocks as they are on the last legs of their
multi-year blow-off rallies even though the technicals do not confirm
such price appreciation. In fact, the
chart of CHBS above looks a lot like many technology stocks did before they
suffered their eventual demise. You can
count on one thing in the stock market: a parabolic chart will never
stand the test of time. Never
has…never will.
Now this morning with the futures down, Maria is
telling us "one should expect
a little selling after this two-week rally." No, Maria, actually after
listening to you and your crew, we were expecting new highs as your constant
stream of guests remind us that "the only risk to the stock market
is not being in it."
SHORT WATCH: Healthcare and retail might be under
pressure. Fed beige book said retailers will have a rough go of it. Anything in
the technology glamour patch
looks ripe for a big pullback: JNPR, CIEN, RFMD,
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NVDA |
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BRCM |
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etc. You know the drill. Defensives
such as tobacco are hovering at their highs with seriously downturned technicals.
Although they look ready to break, techs
will give you better bang for your buck.
LONG WATCH: Ummm…not this morning.
Trade hard.
Goran