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Jul 24, 2006 - Issue #016
Roller Coaster Ride!
Are you enjoying this roller coaster ride? Hold on tight. This ride is just beginning.
The Dow ended the week up 1.20%. No big deal, right? To see just how misleading the
Dow-Jones Industrial Average really is, examine the charts of the individual components.
The score card: 20 up and 10 down. The percentage changes ranged all over the place from
Microsoft (MSFT) up 7.09% to Intel (INTC) down 4.08% to Home Depot (HD) practically
no change (up a penny for a 0.03% increase). Other than that, nothing much happened.
Weekly Trends: 10 Rising (+1), 5 Consolidating (-4), and 15 Declining (+3), in my opinion.
This would indicate a deteriorating condition.
Many of the guests on CNBC this week were economists who basically were telling us
how great our economy is. My question is: Great for whom?
Anyone connected with any thing retail might disagree. Not only are retailers' taking
a beating, restaurants, home improvements, car dealers, and the list goes on and on.
On-the-street interviews all say the same thing: The high price of gas at the pump! When
your commuting costs double, adjustments have to be made.
How long can you keep putting it on the old credit card when the tank has to be filled
regularly and frequently at ever increasing cost?
How long can you keep taking it out of savings (assuming you have any)?
So you cut back.
When, in a consumer driven economy, consumers are forced to cut back ..., well, do I
have to spell it out for you?
Also, how many of us, instead of out spending our money, are glued to the TV watching
events unfold in Beirut?
Even the airlines now say that fuel costs more than payroll. At least, they have the
ability to hedge their fuel costs through the futures markets. Can you?
Of course, if you get paid with a bunch of back dated stock options, you've got no
worries, right? It's like free money.
A while back, I mentioned buying protective puts out to Jan '07 as insurance along
with Intel (INTC) for a low cost risk position. Sage advice.
The stock, although down, is not making new lows. Without protective puts, a trader
must decide where to place 'stops' and, thereby, run the risk of getting 'gunned'.
With the put protection in place, however, no such decisions need be made. It sure takes
the pressure off. If the stock breaks to the downside, the position is safe. From here,
if the stock breaks to the upside, the position could be increased at $18.65 on a stop.
Hewlett-Packard (HPQ), on the other hand, looks weak and, in my opinion, should be
shorted on rally attempts. The vehicle of choice: SSF. See Trading Vehicles/SSF.
Comments? Ideas? Feedback? Let me have it, right between the eyes! I'd love to hear from you. Just reply to this zine and tell me what you think!