Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
AM EDT, Friday, October 2, 2009: So is it all
over? It peaked on the morning of Wednesday, September 23. It's been all downhill
ever since. Though the charts show "only" a 4% drop, it feels a lot
worse. And yesterday's 203 point fall (2.09%) on the Dow and 27.23 point fall
(2.58%) on the S&P 500 suggested that it was all downhill for the rest of
The media took
the stockmarket plunge as an opportunity to open up the "no jobs"
discussion -- endlessly. If you don't have jobs, you don't have consumer purchases
and, hence, an economic recovery. I suspect most of my readers are insulated
-- to some extent -- from the miserable employment situation. But I sure we
all have friends who are seriously hurting. We have friends whose unemployment
has run out and whose spending basically ceased. No clothes, no restaurants,
no theater ... no nothing. For many people, there are no jobs. Even pro bono
employment is impossible to find. That failure hurts the ego.
gurus, like Richard Russell, yesterday was affirmation that cash and gold are
all that make sense. Russell wrote "The decline from 2007 to 2009 did something
unusual. It shattered the long rising trendline that I have been watching with
awe since 1980. And I ask myself, is this the beginning of the big bear market
correction, the move that will correct 27 years of generally rising stock prices?"
To emphasize his point he published this chart:
Turning to Elliott
Wave theory (which I haven't done for many years), we know that most bear
movements tend to take the form of an A-B-C pattern (an initial A wave down,
a B upward correction and a final C wave down). We also know that following
crash patterns (such as 2007 to 2009), it is usual for the price movement
to recoup half or more of the losses of the first major decline. If the Dow
was to correct 50% of its 2007 to 2009 decline, it would rally to the 10300
area. We're not there yet.
But what I'm
thinking about is -- suppose the decline from 2007 to 2009 was the "A"
leg of a major bear market? Then the worry is that following the current B-leg
advance, we face the "C" leg of the bear market. The C leg would
almost certainly see the Dow and most of the market break below the March
has me mostly on the sidelines with cash and gold.
You can't predict
Mr. Market. But the few brokers and others I spoke to yesterday all felt sure
that this year's run-up was over. This was their "gut feel" They were
all eyeing shorts -- shorting overpriced stocks.
chart tells a different story:
There was a pretty
gruesome drop beginning in the middle of June and extending into the first week
of July. We're not there. But then, stocks are not cheap. Or are they? I went
on Yahoo! Finance's stock
screener last night and asked it to find me stocks whose P/E ratio was
between 5 and 10. I found 376. Some of the names I recognized included Brinks,
Bucyrus, Chevron, Constellation Energy, Del Monte, Marathon OIl, Penn West Energy
Trust, Tesoro, Wellpoint and oodles of banks.
Hot names like
Apple and Google are way higher -- 31 and 35.
How about the
Dow Jones 30? I looked at the list and sorted by P/E ratio. Nothing stunningly
All of them did
miserably yesterday. Here's Bloomberg's chart::
In short, we're
at some sort of turning point. I don't like what I see. But I'm not issuing
a "Sell Everything" recommendation, as I did in November, 2007. Let's
watch this for a day or two.
STEC sucks big-time. It's broken down. The
shorts are in control. This chart comes from Breakpointtrades.com. According
to reader Tom Diroff, " they are pretty good at this stuff."
The last time
I spoke to STEC's president, there was a panic and frustration in his voice
-- as though a world totally outside his world had engulfed his company. And
he had zero idea what to do. His stock had become a plaything for traders who
were putting out stories that STEC was being overwhelmed with new competition,
earnings were under pressure, the stock was overpriced and about to take a thunderous
fall. STEC did a secondary recently at $31 -- in which a bunch of insiders sold
a wad of their shares. That should have told us something. Maybe.
It looks like
the stock will open around $26 today. The BIG lesson here is with "hot"
(it was once) stocks, you need to go with the flow. Ultra-short trades are all
that make sense. Make a few shekels. Get out. Don't stay in for longer than
a day or two.
can see one of these for me.
And for me? He
was a good husband, a wonderful father, a passable tennis player, but a bad
case you missed this wonderful cartoon:
There was blue sky earlier this morning in New York. But now it's gray. I wonder
what that means?
This column is about my personal search
for the perfect investment. I don't give investment advice. For that you have
to be registered with regulatory authorities, which I am not. I am a reporter
and an investor. I make my daily column -- Monday through Friday -- freely available
for three reasons: Writing is good for sorting things out in my brain. Second,
the column is research for a book I'm writing called "In Search of the
Perfect Investment." Third, I encourage my readers to send me their
ideas, concerns and experiences. That way we can all learn together. My email
address is .
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