Stock Market
All comments and Stock Market Ananlysis are made by Guy Brumley. Guy has been trading the Stock Market daily since 1992.
Trading, evaluating stock prices and predictions
Stock Market Commentary 7-15-2009
The Dow traded in a tight range closing 27 points higher. The news from Goldman Sachs was positive in the pre-market, and after the close Intel sparked further optimism by upping their estimates for the next two quarters. After hours, Intel was up $1.25.
The market is fickle, in the last two days we have had Dell projecting gloom and doom, and Intel painting a rosier picture. Which way did the market move?
The “This is good news, no, this is bad news” spin of each report makes an investor step back and scratch his head. Does the fact that GS or INTC beat the street estimates mean that these stocks can return to their old highs of $35 or $72 for INTC, or $250 FOR GS.
The truth is the whole S&P needs to be reviewed. The earnings on the entire S&P 500 needs to total more than $14.00 for the quarter. This is the earnings number that is needed to support the S&P 500 at 750. For the S&P to hold 900, we need the expectation of next year’s quarterly earnings willincrease to $15.00, then $16.00, and higher. The key is “increasing” earnings. If the economy can grow, stocks will be more valuable.
Here is an example. Company A and Company B, are looking for investors.
Company A is losing money, and Company B is making money. Company A needs the proceeds from sales of its stock to make next quarter’s payroll. Company B is going to use the money to buy more equipment to make more product.
The next quarter projection from Company A is continued losses, while Company B forecasts increasing profits. Which one would you buy?
Seems simple! Yet, this is the basis for every stock you purchase. Yes, the pricing does not stop at next quarter’s projections. The market gets ahead of itself, and will price a stock based on 1 year, 2 years or 10 years into the future, and inflate the earnings (or losses) to irrational levels.
When earnings are rising, the indexes move higher. This is the easiest time to play the new high list. Eight out of ten stocks rise with the market.
When stocks lose money, the indexes drop. You can short the market or go to cash.
I think we are now in a sideways market. We will go up for a while, go down for a while, and a year from now be at the same place. The new high list will work for three out of ten stocks, which is not a good percentage.
The play in a sideways market is rolling stocks. These are stocks that drift in a 10-point range, (sometimes 20 points). During 2005, BBBY would roll from 35 to 45. We would buy at 35-38, sell at 42-45, and wait for it to recycle to 35. In today’s market, the number looks like 26-34.
ISRG may be rolling from 140-160. MT could be rolling from 25-35.
This may be a more applicable trade in the next one to four quarters.
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