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THE BULL MARKET TECHNICAL INVESTOR
April 17, 2000
Volume 1, #4
"Off The Charts"
By Barry Habib and Art Adams.
Every week will give you an update of performance results and holdings. We certainly picked a heck of a week to launch a newsletter! In our three editions this past week we made 13 selections. Two never reached the entry points we wanted. The 11 selections that we did trade have either all reached the targeted price, causing us to exit the position with a profit, or had hit the protective stops, causing us to exit the position with a loss. Therefore our position is 100% Cash at present. Performance to date is a loss of 1.7% after our first week. While we are not pleased about posting a negative result, it compares very favorably to the major indexes (Nasdaq down 25%, Dow down 7%, S&P down 10%.) This reinforces our conviction that Protective Stops are a must. It also shows that there are profits to be made in a down market with "Short" trades (selling before you own the stock). We made huge quick profits on all three of our short plays last week.
This was just an awful week for the equity markets. We thought it would get bloody once the Nasdaq fell below the support at the 200-day Moving Average (MA), and that's pretty much what it was.bloody. The stronger than expected Consumer Price Index Report could not have come at a worse time. These are indeed very trying times for the equities markets and especially the Nasdaq, the market for the 21st century. There has been tremendous upward momentum in the Nasdaq since the middle of last October until the recent peak on March 10th. Now that same momentum has reversed and is headed back in the other direction. This has been a case of "momentum up, momentum down."
Friday's trading was certainly not a confidence booster as the Nasdaq Composite Index continued to drop precipitously the last hour and closed poorly. The Index ended the day down 355 points and well below its 200-day MA. If the market fails to stabilize, then the next level of support would be in the range of 2,800 to 2,500. If we were to pick an exact support number, it would be 2,632, from the low registered on October 18, 1999.
Margin calls are forcing many people to liquidate their portfolios causing excessive selling pressure and leading to a vicious cycle of selling in a rapidly collapsing market. We expect more margin calls on Monday. Fund managers are also selling holdings to raise cash. Market psychology has done a 180-degree turn, confidence has been shattered and the result is panic selling. Hopefully, we'll get the last of any shakeouts out of the way early next week so the repair process can begin. Keep in mind there has been a tremendous amount of damage done. From this year's high to today's low, the Nasdaq has lost 36%. In order to get back to this year's high recorded on March 10, the Nasdaq will have to rally more than 57% -- a difficult task for any market.
Warburg Dillon released the following information today pertaining to Nasdaq bear markets.
Year Decline Mos. to Recover
73-74 59% 48
Oct 87 35% 20
89-90 33% 7
83-84 31% 18
July 98 29% 2
So what do we do? Is this a buying opportunity or a real decline and bear market? Stocks are severely oversold, which makes it difficult to find short sale candidates. However, this doesn't mean that it's time to step in and bottom-fish for bargains. Often, an oversold condition becomes even more oversold. If you try to go short, you're at risk from a sharp rally from an oversold condition. If you try to go long, panic could set back in, and stocks could drop even more.
Although there were a number of blue chip technology companies trading higher in the after hours session on Friday, there is no guarantee this will carry into a stronger opening on Monday. In fact, we believe there is a high degree of probability there will be more downside to come at the open on Monday. The real problem is, even if there is a bit of a rally, traders will probably use it to sell into strength. With that said, be very careful when trying to make any trades, or take a day off and do nothing.
We're going to present a few trading possibilities because that's what you can expect from The Bull Market Technical Investor as a subscriber but this doesn't mean you have to trade. Remember that the essence of good investing is to risk capital only when the odds are strongly in your favor and the rewards appear to be many times your risk.
Here are the selections for this edition:
1. AngloGold, Ltd. (AU. $23)
2. Silicon Storage Technology (SSTI, $61) *** A SHORT play***
3. Amdocs Limited (DOX, $54.75) *** A SHORT play***
4. State Street Corp. (STT, $87) *** A SHORT play***
DISCUSSION
1. AngloGold, Ltd. (AU. $23)
Anglogold, Ltd. is the world's largest gold company, producing 8 million ounces of gold a year. Two days ago, in what looks like a bold move to appeal to individuals, AU announced it is setting up a golden web site to market its gold and gold products such as gold coins, jewelry, bullion and other items. Bobby Godsell, who has been the AngloGold CEO for three years and is a South African, was quoted as saying "we claim no science about the gold market. This is not an industry in great distress. We made $250 million last year. Our stock has a 6 percent dividend, and our financial performance is a lot better than a lot of Nasdaq stocks."
In times of uncertainty, gold stocks can become a defensive market play and can generate quick short-term gains. We show a new buy signal for AU derived from a Hammer/Hanging Man Candle Pattern, a Stochastic %D Moving Average Crossover, and a Bullish Engulfing Lines Candle Pattern. Our target is $27 with a protective stop loss set at $21.
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2. SILICON STORAGE TECHNOLOGY (SSTI, $61)
Silicon Storage Technology is a short play at Monday's opening. SSTI closed below its short-term support level on Friday and we have a sell signal generated from an Engulfing Lines Candle Pattern, a Momentum Peak, and a Relative Strength Divergence. Our target is $53 with a stop loss
set at $64.
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3. AMDOCS LIMITED (DOX, $54.75)
Amdocs Limited is another short play for Monday. DOX gapped lower on Friday 's open and closed below its lower Bollinger Band on heavier than average volume. We show a sell signal for DOX generated from a Gap Breakout, a Stochastic Peak, and a Relative Strength Divergence. Our target is $45.75 with a protective stop set at $57.50.
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4. STATE STREET CORP. (STT, $87)
State Street Corp. is yet another short candidate for Monday morning. A sell signal was produced from Price Rate of Change Crossover and Volume Accumulation Percentage Divergence trading systems. Our price target is $80 with a protective stop loss set at $91.
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OUR PHILOSOPHY
The Bull Market Technical Investor is designed for savvy, active equity traders and those investors wanting to identify opportune times to buy or sell high performance stocks based on technical analysis. The primary objective of our technical analysis trading system is to maximize trading profits by identifying key reversal points and breakouts of stocks as they move in and out of their trading ranges.
Our computer-based trading system generates buy and sell signals for selected stocks by applying over 125 trading systems to the historical prices of each stock. The signals generated are based on daily stock price data, the use of which most accurately discovers shorter-term trading opportunities. The end result is a trading system that is very sensitive to patterns in the way stocks trade in the markets. However, quick reversals can and do occur in response to unexpected buying or selling of any given stock, such as might result from the release or expectation of news.
Subscribers who are long-term investors in any of the stocks mentioned in The Bull Market Technical Investor need to understand that this system is designed to allow trading of these stocks as they reach levels of support and resistance, as they travel along or break out of their trading ranges.
A "Sell" signal, when it occurs, does not necessarily mean the stock is not a good long-term investment, just as a "Buy" signal does not necessarily mean it is a good long-term investment.
It is our intention to publish The Bull Market Technical Investor at least three times per week and to keep it FREE as long as we can, supported by advertising. Each issue will contain from one to three stock selections we feel will provide you with high performance trading opportunities.
Barry Habib & Art Adams
TechnicalInvestor@Bull-Market.com
Todd Shaver
Editor in Chief
The Bull Market Technical Investor
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BIOGRAPHIES
Barry Habib is president of CMA; a New Jersey banking, insurance and financial planning firm that manages over $400 million per year. CMA employs over 40 people.
Mr. Habib, age 40, holds a degree in finance and economics and is regularly featured on the CNBC television network. His monthly report airs live on CNBC the first Wednesday of each month at 8:40AM ET. Additionally, Barry is often featured on NBC, FOX, CNN, Dow Jones and Bloomberg television for his market forecasts, technical analysis and
general market expertise. Barry is a regular guest on Business News Network radio where he applies his technical analysis to stock selections. You can tune in live over the Internet at 3:40PM ET every Friday @ www.businesstalkradio.net/. Barry also provides stock picks for The Bull Market Report, which has a readership of over 100,000 subscribers. A nationally recognized speaker, Mr. Habib is also a licensed member of NASD.
Art Adams has a strong background in mathematics, statistics, and research methodologies and was formerly the Vice President of Technical Services for Capital Markets Communications where he edited and produced a weekly trading newsletter featured on Telescan's WallStreetCity web site. He was also a former broker with Merrill Lynch specializing in technical analysis of securities. Art is presently the president of a private investment company. He has a doctorate, and is an active stock and options trader.
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Disclaimer: Barry Habib, Art Adams, Todd Shaver and other contributors to this newsletter hold long positions in some of the securities mentioned for purposes of investment or trading. Their views and/or opinions may change rapidly and without notice. All information contained in the newsletter is obtained from public sources and believed to be reliable,
but the accuracy of this information is not guaranteed.
The Bull Market Report, LLC is not a registered Investment Adviser or a Broker/Dealer. Readers are advised that the report is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy. The opinions and analyses included herein are written in good faith, but no representation or warranty, expressed or implied is made as to their accuracy, completeness or correctness. Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report should be independently verified with the companies mentioned. In addition, no one connected with this newsletter is taking any compensation of any kind from any companies that are mentioned in the report.
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