LOL, and here is one for those that want to rethink that.
Investor's Corner
Thursday, December 14, 2000
Damaged Stocks Face
Horde Of Eager Sellers
By Jonah Keri
Investor's Business Daily
You watched the Nasdaq follow through on Friday, confirming a rally that began Dec. 1. The presidential election, which had been distracting the market, should finally reach an end.
Time to start trolling for great stocks. You might be drawn to some familiar names, such as Broadcom, Qualcomm and Ariba. Sure, they're way off their old highs. But they're on their way up. Why wait for them to form a base? Doesn't it make sense to grab them while they're still cheap?
In a word: no.
If you played your cards right, you got out before the bear market ravaged your portfolio. Now you're ready to put that cash to work.
Others weren't so lucky. They tried to hang on to their stocks even as the losses piled up. If those techs could just get back to where they bought them, they could sell and break even.
Investors in that boat make up what's called overhead supply. A beaten-down stock must fight past these eager sellers every step of the way back to its old high.
Ariba's no stranger to overhead supply. The online procurement firm went public in June 1999 and took off. It ran up tenfold from the end of its first trading week to its peak in March (point 1 in accompanying image.)
The Nasdaq then began to fall. Ariba fell even harder. The stock plunged 73% in six weeks, finding a bottom near 50.
After another six weeks, Ariba was ready to reclaim its old peak. It nearly made it. But the stock stalled in September at 173 1/2, just 5% shy of the March high (point 2.) It moved sideways for a few weeks, prompting more folks to buy in.
Ariba slid lower, then found support in October around 110, at its 200-day moving average (point 3.) A few more eager traders stepped in, banking on mutual funds buying back in and pushing the stock higher.
But the stock couldn't hang on. It dived all the way to 51 3/4, nearly undercutting its old lows (point 4.)
Ariba has come back since, gaining 38% from its Nov. 30 low. It could move higher in coming weeks.
But don't take that as a buy signal. As Ariba moves back up, it'll have to climb over a huge wall of overhead supply. It has to jump over disgruntled October buyers (point 3) and the outraged September holders (point 2), not to mention all the remaining investors from the first meltdown. At 61% off its high, Ariba needs to more than double just to get back near its old peak. If it does make it all the way back, it'll likely be dead tired, in no shape to hit new highs.
That's not to say old favorites can't lead the next bull market. Some mainstays will join a new batch of leaders and show the way.
But if you're looking for big gainers, seek out stocks that hung tough during bear season. Faced with far less overhead supply than their beaten-down brethren, these stalwarts will have a much easier time zooming to new heights. |
