These 6 stocks have good risk/reward ratios
Falling leaves. It is October. So what else is
new? Leaves fall in October. That is what is happening right now as the bounce
at the end of September falls flat.
This morning I will get into a few stocks
that are timely and especially AAPL. Markets are down across the globe. The
leading major market in the planet right now is the NIKKEI 225. It closed down
on the day losing .69%. The Hang Seng on the other hand caved over 2%. European
markets are down across the board keeping pace with our draggy market. A
catalyst is necessary to cause an upside swing. Forget about interest rates
moving lower. The Fed is on course to raise rates to at least 4.5% for overnight
lending. It means that the Fed will raise rates at least 2 more times and a
total of 13 times since the tightening process began. Who said, “ don’t fight
the fedâ€. It is amazing that the market actually held so well this year. In
spite of rising interest rates, raising from zero ,and higher energy prices,
this market is essentially flat on the year. The tape is split and that accounts
for the apparent neutral ground the market has been standing on. The ground is
starting to give and the lines of support are weakening.
Lets just examine the
SPX for a moment and check the trading action within that space. It is not
exactly hot to trot and the SPX is the best performer of the 4 major market
averages. Frankly, what it looks like right now given an objective view is the
start of a new bear market. I say this because the SPX trades under all key
inflection points. It now trades under its 200 day moving average as well as its
10-day moving average. What confidence there was has retreated to a dark corner.
I still believe that there is one more modest rally left. A rally that will
likely fall short. The fed is not stopping for a while. That is clear. Greenspan
and others will speak today and the tone will be much of the same indicating
higher rates ahead.
The rally will come if energy prices come in. If oil drops
below 60 then the market will rally and the rally will be led by technology
stocks. Right now the SPX trades at 1184.87. Its 200-day moving average is
1199.75.Stiff resistance at 1200. The 10-day moving average is 1207. The last
week of trading has flattened the bulls. It has been brutal. The dark hours have
been around 11-2pm. It is not healthy that the market caves at the 11am hour.
That is typically when smart money begins its movement. Smart money has been
flowing out of the market during the middle of the day and that is not a healthy
expression. The image of the market is dark. A drop in oil and gas prices could
shed light. That is a big if. Lets examine a few stocks that are timely and will
begin with AAPL.
Apple Computer
(
AAPL |
Quote |
Chart |
News |
PowerRating) 51.59
The leaves are falling off the apple tree. Falling leaves surround AAPL this
morning as investors react to the earning report delivered by Apple Computer.
Lets examine the action in the stock pre open this morning and look at the
technical underpinnings. I am inclined to buy more AAPL and add to my position.
The leadership role-played is still in tact. The stock will likely open just
under its 50-day line and that line ought to be overcome within the next few
days. In fact it could be overcome today as AAPL announces the launch of yet a
new product that will likely be a bigger hit then the ipod. It’s the next
generation. So investors and traders will get a chance to react to yet another
big news item delivered by Apple Computer. I am thrilled at the chance to pick
up stock at lower prices. I am betting on it to deliver satisfying performance
numbers in the 4th quarter. I am speaking to the movement of the stock. The
stock will tell the tale about the fundamentals going forward. AAPL is operating
on all cylinders. Longer-term investors ought to look at the 200 day moving
average to place the protective stop. Those intending to play a swing ought to
wait till the stock at least manages a climb and close above the 50-day line,
which is 48.61 before committing fresh cash.
JDS Uniphase
(
JDSU |
Quote |
Chart |
News |
PowerRating) 2.02
This stock is coming in after a decent break on heavy trade the other day. It is
a good chance to grab the stock as it comes into the 1.90 range. I am buying
more shares today. I am loading up in this stock because there is a good shot
that the new advance takes it up to challenge 2.75. That is huge if it comes to
pass. That is a gain of close to 50% from current levels. That is certainly in
the cards given the current pace of trade. JDSU is coming into buying range
right now. The best time to make a bet on tech stocks is right now. This time of
year is typically when they bottom out. JDSU happens to be in the beginning of a
new advance and is just adjusting and testing that right now. Place the stop at
1.69.
3Com
(
COMS |
Quote |
Chart |
News |
PowerRating) 3.71
This stock came in as well down almost 10% in the last 5 days. It came to
current price levels in lighter trade. The break out the other day occurred in
heavy trade.COMS is brushing its 50 day moving average and that is what I am
using as a protective stop. It is a good buy right here and a stop of 3.49 is
the place to punt. Its not there and if it holds then the stock rallies back up
from here. The risk is low. All key inflection points are above 3.50. This is a
dog of a stock that is launching a new advance. If it gets through the month of
October trading above key lines then money is going to be made long the stock.
Before getting into the shorts and there will be a couple covered this morning,
I remind you of a focus list that contains both longs and shorts. The focus list
is loaded with opportunities. The portfolio has been hit over the last week but
will recover nicely due to the hands on risk management that pays close
attention to risk and the action relative to the tape. To reiterate that AAPL is
still a bullish stock. So is JDSU and COMS. All of the longs in the portfolio
are in long-term bullish patterns. When they come in it is usually to adjust an
extended condition and therefore reflects a buying chance. So that is the case
regarding the three longs just mentioned. Get the drift?
Juniper Networks
(
JNPR |
Quote |
Chart |
News |
PowerRating) 21.58
I am short this stock. Lets take a walk on the dark side of the street and pay a
visit to JNPR. I am delighted to be short this stock. It is a good short and if
it is money that you are after then go for this sweet decline and sell JNPR
short. JNPR is in decline. How do I know this? It is no secret. It just takes
paying attention to the action expressed over a period of 10,50,and 200 days. Is
the stock trading below or above those critical lines, lines that measure
health? Like a doctor examining a patient, when you place the stethoscope on the
heart of the matter what you get is a struggling patient. JNPR is a broken
stock. It is moving to test the recent lows in the 20 zones. A drop below 20 and
the stock is inclined to move toward the lows made in 2003 and that is just
above 16. The opportunity to make money getting involved in JNPR short is clear.
Place the stop at 23.75 for an investment. Swingers use a shorter leash. Use
22.50.
Guitar Center
(
GTRC |
Quote |
Chart |
News |
PowerRating) 56.53
Check out the chart and it tells of a stock that is on the verge of decline as
it angles in a southerly direction. GTRC is heading south after forming a top
that comes on the heals of a decent advance. It is in a declining stage right
now. It will be in full decline if it falls below 55. The lows will be
challenged and if broke then the stock lands in the vicinity of 47 a share. The
potential for that to occur is good. Therefore sell it short and sell more short
below 55. Place the stop at 58.15
American Eagle Outfitters
(
AEOS |
Quote |
Chart |
News |
PowerRating) 23.14
A nice stock to be short. It is in decline. No question about that. I like the
store. I go there and buy clothes for my daughters. They prefer picking out
there own clothes and have done that since they were 2. But I enjoy getting them
stuff from a store they like. Still, I go the opposite way then lets say, Peter
Lynch may go. My kids luv the store and I am short the stock .Go figure. Well I
am short the stock because instead of listening to my emotions and watching the
traffic in the malls I just study the tale of the tape and when I examine that I
see an opportunity to make some money selling AOES short. So I am involved and
intend to keep it as it drifts toward support in the 20-21 zones. Place the stop
in the 26 zone.
Jack S. Rothstein
Rothstein Investment Advisory Services, Inc.
3600 Chain Bridge Road, Suite 200
Fairfax VA 22030
Phone 888-343-4825 — Fax 703-385-7232
www.jrmoney.com
— www.wealthcast.com
Jack Rothstein is the President of Rothstein Investment
Advisory Services, Inc. and is a 20-year veteran stock trader and a money
manager.
Mr. Rothstein also writes Wealthcast, a monthly newsletter about the technical
behavior of the markets. He has been quoted on Bloomberg, CNNFn, the Dick Davis
Digest and the Dow Jones Newswire. Since 1993, Mr. Rothstein also hosted
WealthCast, a radio show in the Washington DC area covering the stock market.