IBD's 'Where The Big Money's Flowing Now', Monday, August 7, 2000
investors.com
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investors.com
>>> Let Rules, Not Emotions, Define Your Trading
By David Saito-Chung
Investor's Business Daily
Do you trade stocks with your head or your heart?
In one way, the market is a rational judge of a company’s worth. Millions of investors set prices for thousands of stocks. But the market is not robotic; it’s human, too. Investors’ emotions are on display every day.
Savvy investors don’t let feelings rule their decisions. They use a time-proven system and stick by its rules. To succeed with growth stocks, guard against these emotions:
HOPE
A cardinal rule of buying a high-quality stock is to wait until it flies out of a sound price base on a burst in volume. But many cheat by buying at the bottom of the base. They hope the stock will finish the base, then rally to new highs.
Not all bases work out. After peaking at 212 on Dec. 22, Internet Capital Group fell 54% to 96 15/16 over the next nine weeks. The stock hit bottom Feb. 28 and rose the next four days. On March 6, it gapped up 23 points after Robertson Stephens upgraded the incubator of e-commerce firms to strong buy from buy and set a $250 target.
Investors were giddy. One message on the Motley Fool’s board ended with the words, “ICGE: A Lean Mean B2B Gorilla On the Prowl and Growl.” But those who saw ICGE’s chart knew this: The stock had lost half its value and would have to rise 100% first before getting in range for a new breakout. That’s a tough feat for any stock.
Internet Capital never made it.
Other investors don’t cut losses in a stock to 8% or less. They may even add shares. They hope the stock will go back up. Instead, they dig an even deeper hole as a stock falls 15%, then 25% and finally 50% below where they bought it.
“If you let your losses get away from you, then there’s no science to what you’re doing anymore,” said Mark Forney, a hedge fund co-manager.
GREED
A good stock can bolt up 20% in a week or less after a breakout. Disciplined growth investors won’t touch a stock that’s 5% past its breakout. Those who do can get burned quickly. Many stocks will pull back to their pivot before resuming their advance. They also might fall back into their base, leaving the late buyer with a big loss.
When a stock breaks out in a brand-new bull market, it’s usually with little fanfare. But in time, buying reaches a frenzy as the stock shoots up almost vertical. As greed climaxes, smart holders sell into the end of the rally.
Keithley Instruments doubled in price two weeks after its early June breakout. From June 28, the stock soared another 50% in four sessions. But on the fourth day, it reversed from its peak and closed sharply lower on the heaviest single-day volume throughout its run. The stock is now more than 50% below its peak.
FEAR
At the end of a bear market, investors are still scared of going back in. But that’s exactly the time when new leaders are setting up to lead the next rally.
Cool-headed investors wait for one or more of the major averages to follow through by rising 1% or more on higher volume, four to seven days into a new rally. Not every follow-through works. But the facts show that no bull market has started without one. <<<
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investors.com
>>> The Real Most Active
Monday, August 7, 2000
The NYSE Real Most Active
By Ed Carson
Investor's Business Daily
Investors politely applauded a friendly jobs report Friday, but they were in no rush to buy.
The Dow industrials rose 61.17 points, or 0.6%, to 10,767.75, near the day's high. The S&P 500 gained 0.7% to 1462.93, right at the session high.
Big Board trade eased 13% to 956 million shares. Winners led 3-to-2.
Investors took July's jobs data to the bank as the NYSE-Financial Index soared 3.1% to a 52-week high.
The Banks-Money Center group led all other industries Friday. J.P. Morgan surged 8 1/4 to 143 1/4 on strong volume. The financial giant broke out of a four-month base, stopping just short of its April 4 peak. The Dow component accounted for four-fifths of the Dow's gain Friday.
Investment bankers had a strong day. Bear Stearns climbed 3 11/16 to 62 1/16 on nearly triple normal trade. Lehman Bros. Holdings sprinted 9 to a new high of 128 1/4 on heavy volume.
Among superregional banks, Mellon Financial jumped 2 11/16 to 42 13/16, breaking out of an eight-month base-on-base pattern on double normal volume. Comerica gained 2 5/16 to 55 5/8.
Among subprime lenders, AmeriCredit surged 3 5/16 to a new high of 23 3/8 on quadruple normal volume. Providian Financial rallied 7 11/16 to 112 3/4 on strong trade. It's just 4% off its November 1999 52-week high, but 18% off its April 1999 peak.
Walt Disney rose 1 1/2 from Thursday's New York close to 42 7/16 on more than three times normal volume. The stock is 3% off its May 1 peak.
Late Thursday, Disney reported fiscal third-quarter earnings of 21 cents a share, 50% above Street estimates.
Calpine rose 3 3/4 to 73 1/4 on nearly seven times normal volume. The independent power producer has been consolidating the past few weeks after breaking out on June 20.
Talbots rose 3 11/16 to 56 15/16 on nearly triple average trade. The classic women's apparel retailer said July same-store sales fell 0.9%. That was better than expected. Talbots says it will report July second-quarter earnings of 42-44 cents a share. The Street had been looking for 33 cents.
Anixter International rose 2 15/16 to 31 13/16 on more than triple normal volume. The cable distributor stands 9% below its three-month-old peak.
Chipmakers were mixed Friday. Micron Technology fell 4 5/16 to 73 3/8 on heavy volume.
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The Nasdaq Real Most Active
By David Saito-Chung
Investor's Business Daily
The Nasdaq gained Friday, but it wasn't an all-tech effort.
The composite rose 27.48 points, or 0.7%, to 3787.36. It's up 3.4% for the week. But the tech-heavy Nasdaq 100 fell 0.1%. Volume slowed 21% to 1.44 billion shares. Breadth turned positive, as gainers led 4-3.
Education firms had a good day. Education Management rolled ahead 1 1/2 to a 52-week high of 23 5/8 on nearly three times average volume. The provider of post-secondary programs posted a 25% rise in June fourth-quarter profit, the best in three quarters.
Career Education rose 1 7/16 to 59 15/16 on four times usual trade. The stock is up 48% since breaking out of a range in early June. Apollo Group shot up 2 11/16 to 39 15/16 on four times usual trade. The stock is now 8% off its August 1998 peak.
Oracle gained 4 1/8 to 81 9/16 on nearly double normal volume. The stock has been caught in a range between 60 and 90 over the past 19 weeks and is 9% off its high. CFO Jeff Henley reportedly told analysts at a dinner hosted by Morgan Stanley Dean Witter that the software giant is targeting 40% operating margins by the end of the year.
Emulex rocketed 20 3/8, or 43%, to 67 15/16 on six times normal turnover. The stock is still 69% off its March peak. The maker of fibre channel products used to speed data flow within computer networks posted a 150% rise in June fourth-quarter net to 25 cents a share, 4 cents above estimates.
Some specialty retailers advanced. Christopher & Banks, formerly Braun's Fashions, rose 3 to 25 1/8 on four times average trade. The stock briefly pierced its 50-day earlier last week. The women's clothing retailer posted a 25% rise in July same-store sales.
Children's Place Retail gained 2 15/16 to 29 11/16 on five times its 50-day average volume. Second-quarter same-store sales rose 7% vs. a 19% rise a year ago.
But Factory 2-U Stores slipped 2 9/16 to 38 on five times normal volume. The stock broke out of a five-week flat base on July 27 but has dived back into the base. It found support Friday at its 50-day moving average. The shoe retailer's July same-store sales rose 1.6%, vs. an 11.2% rise in the year-ago period.
Concerns over slower orders from Motorola continued to shake components suppliers. RadiSys fell 1 9/16 to 53 7/16 on nearly four times usual trade. The stock broke out of a sloppy four-month base last week but failed.
Electro Scientific Industries dropped 3 11/16 to 31 1/2, its lowest close since mid-December. The government is reexamining one of its laser patents.
Some chip gear firms soured. Novellus Systems sank further below its 200-day, losing 2 7/8 to 45 3/8 on heavy trade. Applied Materials lost 1 1/4 to 67 3/4.<<< |
