Hi Nancy -- let me address several issues that you raised in various postings:
First, I don't maintain weekly new hi/lo statistics -- I'd be interested to know more about the historical track record re how this statistic has performed. Does your friend have any information on this??
Re John Murphy's commentary, I believe that it was Fred Weiss who used to post the commentary--have not seen Fred post on the Options thread in a while--but I agree with you that it would be great if he or someone who has access to Murphy's comments could make it available to us on a timely basis. I do respect Murphy -- and I would like to see his full commentary regarding this analogy with the 1929 situation. He is certainly right that in '87 we had a high interest environment which was not there in 1929--though there were other factors in '29 which are not present today. I guess that I am always wary -- of comparisons between one period and another--and if it had come from anyone other than Murphy, I would be less inclined to give it any credence.
On the entry levels for various stocks -- my initial investment is at pre-determined levels -- which I have indicated to you in the case of three of the stocks. Now when it comes to the add-ons at the second and third entry levels, although I have pre-determined levels for each stock, I will not enter automatically if they hit these levels. Each level represents some element of support and I would want to see if the support holds before I am willing to add to the position. For example, in the case of AMAT -- my initial entry is at 22. I would add to the position at 15+ provided it held support at that level and looked stable and the third level of add-on would be at 11+. I think that it is critical that one does ensure that support holds before automatically adding on to the position. If I bought at 22, unless I already own puts on the stock purchased at a higher level, I would look to buy the puts on any rally to the 25 level -- if I added at 15 then I'd look to buy puts to protect the add-on when the stock rallies a few points. I will not add to a position unless I am protected with puts for the stocks that I already own. So if I bought at 15 and then it did not rally enough for me to buy some puts, I will not add on at 11+. This is because I am buying against the trend and I need to be certain that I am not caught with a full position that is not protected. There is too much risk in the market to do otherwise--IMO. With this approach even if there is a water-fall decline my exposure will be limited. I would look to buy puts that are 4-6 months out -- I anticipate that by then we'll have good sense of just how much this Asian situation is going to affect the US economy and for how long.
Now why am I doing this as opposed to waiting for things to bottom?? First, it is difficult to know when things will bottom--timing it is impossible. Second, I believe that short of a global depression there are substantial profits to be made when things ultimately recover. Third, the street goes from one extreme to another when it comes to the view on sectors and buying when a sector is washed out pays off, in my experience. Fourth, I am taking a cautious approach my phasing in the buying and being sure that I am protected. Finally these are not trading positions but longer term holdings. I will be using funds that I don't anticipate needing for several years.
I ran an estimate of the possible return if each of the stocks that I have identified were acquired at the initial level and sold at 90% of the high they made in the past year -- the return would be 80%. If one purchased the stocks at the initial level and the second level, and sold at the same 90% of recent highs, the return would be 110% and if one also acquired stocks at the third level, the return would be over 200%. So what it boils down to is whether one can reasonably expect these stocks to get back to within 90% of their former highs within a reasonable time-frame. I also know that short of a severe bear market it is unlikely that prices will decline to the various levels that I have identified--so I will probably not be as fully invested as I would wish to be at these various levels.
As far as the list of stocks, I would request that you provde me with a list of 20 stocks that you would own as part of a portfolio of quality stocks -- I am asking this from you only because I would like to see what you come up with independently and not be influenced by my thoughts. I am interested in both tech and non-tech -- and preferably those that are not over-valued.
Hope I have made my approach understandable through the above narrative.
Regards |
