The Island Of Misfit Traders?
Forget about
the “hot” new shows scheduled for this new television
season. I have an idea that will revolutionize both television and
investing. Combining the two newest, hippest fads in America: the “Survivor”
theme, and investing in the stock market, into a marketing and multimedia
monster that will crush its competition. The idea? A show called
“Frustration Island.” We gather up typical investors from
mainstream America who are left “holding the bag” in stocks that were
pumped on analyst upgrades and price targets.Â
We get the folks who bought the “institutional favorite” internet
stocks like
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CMGI |
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YHOO |
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DCLK |
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highs when they were all getting upgrade after upgrade. Remember how the fund
managers “loved” them? Remember how Internet ad spending was
“bulletproof”?
We get the folks who bought
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price target out of his ear (or was it his “new method” of analyzing
the stock’s value that was different from the traditional means of doing so).
Whatever this “new method” is, I suggest sending it back to the
manufacturer for a full refund.
We get the folks who bought
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QCOM |
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given that as its price target.Â
We get the folks who bought
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CMRC |
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target that was actually touched by the share price. We get the people who kept
buying
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it fell to $78, she repeated her buy recommendation, and she kept repeating
recommending Priceline as it fell to less than $3).Â
We get the folks who went long the Nasdaq when Joe Battapaglia gave his year
2000 target of 6000 for the index, which later was revised down to 4000.Â
The Nasdaq Composite closed out the year 2000 at the 2566 level. This
represented a nearly 3500-point miss from the original target and a nearly 45%
miss from the “revised” level. Impressive, indeed.Â
We get the folks who bought the “Juniper Networks is eating Cisco’s
lunch!!” hype when JNPR was 150 points from its close today. It ended
up that although Cisco’s lunch was being shared by JNPR, mommy only packed 1/4
of a sandwich that day.
We get the folks who bought BRCD after the CEO of the firm emphatically stated,
during an interview with Maria B. of CNBC, that his stock had
“significantly more upside” when it was at $163 a share. (It closed
today’s session at $82.)
So, this is where it really gets good…
After we round up all of these people and put them on an island, we get all the
related analysts, smiling CEO’s, and the television celebrity fund managers who pumped their “favorites” at high valuations (as they were
trying to get out of them like rats trying to escape the Titanic), give them all
loin cloths, and put them on the opposite side of the island. From that point
forward, we get a hybrid between George Orwell’s Animal Farm and a WWF
Smackdown. Oh boy, I hope the networks are reading this! (The major
networks didn’t take my calls today but I’m still trying.)
In case you were wondering if I had a point I was going to draw from all this,
here it is. The lessons from the past seem to fade away and go unheeded, quite to our own detriment. Price targets, “recommended
lists,” upgrades/downgrades, etc., are for the birds. History has proven this
to be true, time and time again. As traders, we have to use the many tools that
are now readily available to us in order to determine what is really happening
within a stock.
Yesterday, I showed you charts of the major brokerage firms, Goldman Sachs and
Lehman Bros. I pointed out that the entire brokerage sector was running on
fumes as their technicals displayed negative divergences towards the end of
their recent nine-week run. Yet, for the past week we’ve heard analysts,
fund managers, and television commentators obsess with the “strength in the
sector” and its favorable environment for further appreciation. We
heard CNBC tell us this morning, from the floor of the NYSE, that there was
“strength in financials” before the open. If you were armed with
your technical analysis ahead of time, you would have recognized that this was
the time to strike and strike hard. As a result of our analysis, we were
rewarded with heavily profitable trades in shorting the major brokerages today.Â
The record will show that we were able to use this same approach in identifying
the recent tops to the “recession proof” pharmaceutical stocks. We profited wildly from shorting those, as well.
At present, the major retailers and apparel stocks are beginning to look like
they may be wearing out their welcome on the stairway to heaven. Lock and load
on these next week. Watch:
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TGT |
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KSS |
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ANF |
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BEBE |
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TLB |
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what you like. The TradingMarkets.com StockScanner is an exceptional tool to use
for this purpose.
As I pointed out after the FOMC meeting, technology had some soul-searching to
do before any new longs were warranted. I hope many of you listened, took
a step back, and let others fight it out in the trenches. Virtually all
Nasdaq sectors got hammered today as fiber optics stocks, networkers, biotechs,
genomics, data storage, and semiconductors all got their bells rung.Â
What’s left? Where’s the leadership? Where’s the breakout?… Where’s the
beef?
For next week, I will be watching what develops in the technology and biotech
sectors as the Nasdaq Composite appears to still have some recent excesses to
wring out. No long recommendations for now until we stabilize.
Have a nice weekend.
Goran