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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (42538)	7/16/2005 2:46:33 PM
From: Return to Sender	Read Replies (2) \| Respond to of 69853

Amateur Investors Weekend Stock Market Analysis (7/16/05) amateur-investors.com

To: Johnny Canuck who wrote (42538)	7/18/2005 1:10:08 AM
From: Johnny Canuck	Respond to of 69853

Be wary of the too-good story Getting Technical Columnist Bill Carrigan shares his top rules for spotting bad bargains BILL CARRIGAN Last week's collapse of Open Text Corp. to under $15 motivated me to scan my current stock positions just to make sure they were all trading above their 40-week moving averages. My No.1 rule in investing is to never hold a stock that is trading below the 40-week (or 200 day) moving average. The No. 2 rule is to never average down on a losing position. Fund managers will often average down because their valuation models are based on price and so when stocks fall they become bargoons. Private investors rarely have new money pouring in the door and so we can't afford to keep buying bargoons at lower and lower prices. Our No. 3 rule is to never get sucked in by a "compelling story." It is what seduces you into the stock and as the stock falls the story may get enhanced just enough to keep you on board, sometimes until the every end. That's when the directors quit, the stock gets de-listed and you become a bag-holder. A quick look at the chart of Open Text revealed a decisive break under the 40-week moving average back in August 2004. Four weeks earlier the stock peaked at about the $43 level. By October 2004 the stock was under $20 and then rallied into 2005 and then began to settle in the $24 price range. On May 5, 2005, the company announced financial results for its third fiscal quarter, ended March 31. The "financial highlights" were total revenue for the third quarter at $105.2 million. Total cash flow from operations in the third quarter was $30 million. During the period, the company repurchased approximately 1 million shares for cancellation at a cost of $18.9 million. According to the firm, "Open Text is a market leader in providing Enterprise Content Management (ECM) solutions." Rule No. 4: when you see a "growth company" buying back their own shares, run. Last week's collapse to a 23-month low was in response to the software maker issuing its second profit warning this year, which triggered a series of downgrades. Consider the compelling story of Hip Interactive Corp. which on May 7, 2004 announced it was revising downward its previously announced earnings expectation for the fiscal year ended March 31, 2004. According to Hip, they are "Canada's leading provider of electronic entertainment, (With offices across North America and in Europe), including video games, PC games, accessories and movies." In spite of being "another header" on the week of April 23, 2004 — a month before the company warning — the stock quietly slipped under the 40-week moving average to close at $2.82. Today the stock is worthless. Last Thursday the shares of CoolBrands International Inc. plunged by one third to a new 52-week low of $2.60 after the company announced a 14 per cent decline in revenue for the quarter and a net loss of $6,889,000. According to the company, "CoolBrands International Inc. is one of the world's leading ice cream companies." In spite of being yet "another header," on the week ending July 23, 2004, the stock slipped under the 40-week moving average to close at $19.40. The stock continued to fall to bargoon levels — to a series of new 52-week lows. On the positive side, some former torpedo stocks have lately turned higher and above their 40-week moving averages, signaling a possible new up trend. On the week ending June 7, the shares of Bombardier Inc. crossed above its 40-week MA. At last Thursday the shares of Nortel Networks Inc. were just under the 40-week moving average (currently at $3.68) which puts Nortel within 8 per cent of this important number. One more good week for Nortel should do the trick and what is good for Nortel is good most of us. Now how is that for a compelling story?