I'm not Bob, but I'll respond. Yes the article was negative. I've seen this argument before, and it is fundementally unsound, because it starts from a false premise: that momentum traders are deliberately moving the price up to bail out at the top, or moving it down to short sell. Heaven knows this happens with the big brokerages. For instance, in a soft IPO they will maintain the stock price by buying to keep it at initial pricing while they work double-hard to move their inventory out. And I believe it was the Getty's who got burned trying to corner the silver market in about 1979.
But those everyday folk who consider momentum are hardly moving markets. Maybe they collectively do, but so do value investors, or any other group with distinctive buy-sell habits. And I question if momentum investors move the market as a whole, as they are constant in what they do. They may cause sector rotation. I think it is when value investors panic or stampede (like when you see an interest rate change) when the market as a whole makes the big move.
As to those who nibble on downward spikes in interday trades, they are like currency traders, making the market more liquid. Myself, I have considered day trades, but still have not, simply because i think overcoming the commissions and spreads is too hard. But there is nothing wrong with doing it if you can make it work for you. Unfortunately, most of the stocks I follow have about 1.5% of value spread differential, and through in commissions, and figure 2% to break even. Reminds me too much of playing poker where you win $20 on one hand (and pay $2 to the house), and then lose $20 on the next. You are $2 behind at that point, even though by play you are even.
What I do is after I have researched i try to consider the sentiment of the market on a stock. As Marty Zweig says: "Don't fight the tape." If the stock is drifting down, I am more apt to defer purchasing. In other words, I would much rather find a undervalued stock that will be discovered soon, rather than later. The whole idea of buying a stock and not worrying about it for 10 years is foolish. Sure, hold a good stock for 10 years. But if you bought a stock for 10 two years ago, and it is now 5, you should do one of two things: sell and take the write-off, or double up if you still think the stock is worth more than $10 (which you did on original purchase).
Just a few thoughts. This seems an interesting thread. On some of the stocks I follow there have been run-ups and slides that I saw as very short term at the time. Maybe I will have a post on this thread sometime in the future. For now, I think COHR has been oversold after a disappointing earnings report, but would not recommend it for a short term swing. It probably will recover a good deal in 3 months IF the market is reasonably up-beat in that time, and value investors return to buying stocks with good fundamentals.
Geoff |
