Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : The Naked Truth - Big Kahuna a Myth -- Ignore unavailable to you. Want to Upgrade?

To: Terry Whitman who wrote (77145)	11/28/1999 7:01:00 AM
From: re3	Read Replies (1) \| Respond to of 86076

from the toronto star... Solving mystery of buy, sell or hold Nortel Networks Corp.'s shares have quadrupled over the past 12 months, creating a dilemma for many investors who may wonder whether to chase the stock, whether it's a buy, sell or hold. I think the stock is a sell, and I'll tell you why. Our chart shows the weekly closes of Nortel in U.S. dollars, plus last Thursday's close. (Nortel reports its results in U.S. dollars, and trades in New York as well as Toronto.) The smooth line on the graph is Nortel's 40-week moving average. When I apply this average to a stock - any stock - I look to see whether it is currently above the moving average line, and whether the line is rising. If these two conditions exist, the stock is considered to be in an up-trend. Nortel has been in an up-trend since 1994, except for the 1998 bear market. But I also look at a stock's distance from the moving-average line because that can vary from time to time. A look at our chart reveals periods when Nortel rose away from the rising average, only to fall and rest on the average for a few weeks. This occurs in a normal up-trend. If a stock is in a down-trend the opposite occurs. The current problem is that, when a stock gets too far away from its moving average, the stock tends to want to come back to that average, almost as though the stock is tethered on a plastic band. Over the past several years, Nortel has traded too far above the moving average, only to correct down to the average. I like to measure the distance as a percentage I call the ``correction potential' number. In the case of Nortel and other active stocks, a number of more than 25 can result in a correction down to the moving average, or a lengthy move sideways, either one of which you want to avoid. Nortel certainly has a history of doing this, as most stocks do. For example, in February, 1996, Nortel moved far away from the moving average and recorded a correction potential of 23. The stock spent the next six months trading sideways into the rising average. In July, 1997, Nortel generated a correction number of 29 and the stock traded down through February, 1998. In May, 1998, about four months before the October crash later that year, Nortel generated a CP number of 24.8. The current CP number on Nortel is a stunning 45. That means the stock could correct 45 per cent down the 40-week moving average and still not violate the current long-term up-trend. In other words the stock at these levels is risky. Consider the behaviour of the shares of Yahoo Inc. In April, Yahoo generated a correction potential number of 50. The stock dropped from $204 (U.S.) to $127 in four months. Also in April America Online Inc. generated a correction potential number of 64. The stock subsequently dropped from $160 to $64. These are extreme cases but anything is possible in these volatile markets. Private investors can protect themselves by the use of derivatives or protective stops. If you hold units of a large Canadian equity mutual fund, I suggest you examine the portfolio and be concerned if the exposure to Nortel and large-owner BCE Inc. is high. If you do not use a financial adviser, I'd suggest you check out the fund screens from Portfolio Analytics (http://www.pal.com), some of which are free.

To: Terry Whitman who wrote (77145)	11/28/1999 11:03:00 AM
From: bill meehan	Read Replies (1) \| Respond to of 86076

TW, BK next week? Ho, ho, ho! (Although it would be nice timing for my trip overseas--liven up the discussions.) I'm thinking about bringing my daughter's bubbles with me for the lone A/V prop. <ng> Not many Bud's left (long weekend, don't you know). MM may have already started tailgating ahead of "big" Jints/Jets showdown. <g>