Stocks are down as the latest round of profit warnings for 2008 are making the rounds. Intel (Nasdaq:INTC), Bank of America (NYSE:BAC) and Time Warner (NYSE:TWX) are all lowering full year 2008 numbers.
But of course, is this a surprise? After all, we all know the economy is in terrible shape. And in Daily Profit, we’ve discussed the inevitability that earnings estimates would come down for 2008 and probably 2009, too. And we’ve discussed to what extent earnings revisions, and rising unemployment, are priced in.
Right now, investors are clearly taking profits from the recent run to the top of stocks’ trading ranges. That’s to be expected. The question is: are we looking at a simple profit-taking, or are we at the cusp of a re-valuation process for stock prices based on a worsening economy?
Unfortunately, we won’t be able to say for sure until the Dow falls to support between 8,100 and 8,400. If buyers step in there, as they’ve done repeatedly over the last few months, we can chalk the decline up to profit-taking. If stocks seek lower lows, then stocks are being re-valued.
Personally, I believe we’re seeing profit-taking. I believe buyers have shrugged off worse news to buy stocks at support levels. Plus, I still think that there’s genuine optimism about what the incoming administration can accomplish. To me, the bigger risk is down the road, when there’s potential for disappointment at how much President Obama can fix the economy.
*****Thanks to the few the wrote in about Daily Profit stocks. Here are the comments. C. Rudov made money: I bought EBS on 11/11 at $19.95 and sold on 12/18 at $25.18. 26% gain.
So did Frank said: …after reading your recommendation for Graham Corp.) I did my own DD and bought on 12/11 at $9.56. Not quite as good as $7.50, but with a 37% gain in less than three weeks I’m not complaining. I also appreciated your comments on oil and specifically USO and purchased shares on 12/24 at $28.98. Needless to say after 2008 your advice on these two stocks was very rewarding!!
But now I’m in a quandry since you are advising taking profits and not holding to pick the right time to sell. The tax consequence is always a consideration. Whatever, love your Daily Profit email and getting close to buying into TradeMaster, but still have to get past my jaded sense of investment advisors.
As you can imagine, I’m thrilled that people have made some money from Daily Profit stocks. And I want to point out, also, that I’m not in any mood to hold stocks long-term. With the markets stuck in trading ranges and the economic picture still very unclear, I believe it’s prudent to take profits when they’re available.
Also, to follow up on the TradeMaster comment, members took another round of profits yesterday. Two positions in Healthspring (NYSE:HS) were sold for 6.8% and 6.2% gains. And California Water Services (NYSE:CWT) was sold for 4.6%. Nice job Benson!
*****Now, I’ve got some more reader mail to get to. Susan wants to know about option trading: I enjoy your emails very much. Can you advise if the stocks mentioned in your emails would be suitable for options? I am a very new options trader and in my own small, inexperienced mind feel options are held way less time than stocks. Also, do you have a blog or website that speaks directly to option traders? Thank you for sharing your expertise. It’s very thought provoking and informative.
Some Daily Profit stocks will be suitable for options, some not. Does that help? Seriously, some stocks are too small and volatile for options trading. Others, like the USO recommendation would be fine for options.
Ultimately, the decision to trade options has to be based on personal risk tolerance. I will, however, offer up some unsolicited opinion. Options are risky because they are contracts that expire. Plus, there is a time component to options pricing that erodes as the option gets closer to expiration. So holding periods are usually shorter than stocks.
One of the first things I learned about trading options is to always, ALWAYS, give youself more time than you think you’ll need. If you think a move is coming in one month, buy an option that expires at least 3 months out. That way, you won’t suffer too much when your forecast is off by a little bit (which it almost inevitably will be).
I don’t have a forum for options discussions now. But it’s on its way. We’re currently building an options component into the TRIGR software that powers TradeMaster Daily Stock Alerts. Rest assured, I will keep you updated on the progress.
*****John, our resident poet, wants to know about the dollar: I would appreciate it if you could talk about your immediate and long term view of the dollar. It would help me make sense of its current strength as the strongest reserve currency as well as its ultimate deficit-driven vulnerability.
Many thanks for your clear insights, your willingness to talk about complicated issues, and your evident commitment to complicate our thinking to create a more informed body of fisherpersons.
First, a “you’re welcome” to John. I’m always happy to complicate anyone’s thinking.
As for the dollar, there was obviously a weak-dollar policy ion the Bush administration. And the current economic situation demands a continuation of that policy. Dropping interest rates, increasing money supply are seen as necessary to combat deflation and other economic problems.
Any relative strength of the dollar is just – relative. The U.S. Treasury ahs the ability to print money to back its bonds, and that’s as good a safety net as exists in the world today.
What it means for the absolute value of the dollar is another matter. It seems inevitable at this point that inflation will become an issue in the future. So the ultimate goal for Americans is to make darn sure your investments are making as much as possible. Easier said than done, I know. But that’s part of the purpose of the Daily Profit – to help all of us stay a step ahead so we can make the most of our investments.