Schaeffer's Trading Floor Blog

VXO

by 6/30/2005 2:08 PM
Stocks quoted in this article:

Want an example of how little apprehension there is? Check out the intraday chart of the CBOE Market Volatility Index (VXO) as it slides to its intraday low as we head to the Fed proclamation...


Chart Courtesy of Thomson/ILX

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Stocks quoted in this article:

Daryl says - "Nick, FYI This was in my mailbox this morning. The contrarian in me asks, 'Can the end of GOOG be far away? Read below:

    'Hi, Daryl, If you Google, and let's face it we all do, you'll be amazed at this simple trading technique that is earning...'"

My response - Given how "hot" Google (GOOG) is (in terms of news coverage) it isn't too surprising to see it in marketing copy. But it does offer evidence as to how widely the stock is watched. And with data from Zacks showing that 18 of the 22 analysts (82 percent) rank the stock with a "buy" rating (up from 67 percent three months ago) it is clear the Street is more than enthusiastic.

However, one of the most important lessons I learned from trading the tech bubble of the late-1990s is that momentum can carry much further than what seems reasonable. For perspective, consider the monthly charts below that shows Yahoo (YHOO), Amazon.com (AMZN), the CBOE Internet Index (INX) and GOOG.

Created with SuperCharts by Omega Research

While some may argue that we are in a different environment today, I think there are still some lessons that can be learned. (After all human emotions don't change.) Here you can see the damage you would have incurred trying to short the shares are on the rally. You can also see that you don't need to pick the exact peak to profit from the downtrend. As far as Google goes, the sentiment seems to be "getting there" but the uptrend is still in place...

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Jeff says - "The gold stocks being strong is this a good area to profit from rising prices if the dollar falls as suggested by sentiment in a couple of articles on Schaeffer's website?"

My response - As I have tried to stress in the past, every trader needs to define their strengths and weakness in order to try to avoid the latter. In my case, I have difficulty trying to gauge the outlook for one asset class by trying to predict another. I know traders who excel in this area but that is not me. As an example of why, check out the chart below that shows the dollar index plotted against the Amex Gold Bugs (HUI)...


Chart Courtesy of Thomson/ILX

As you can see, there tends to have a volatile relationship here and that makes it tough for me to get a feel. I have found better success by keeping it simple and trying to focus on the primary trend. As we saw yesterday, the HUI recently bounced off support so that is what I would focus on...but that is just me.

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In response to my post below Readers Respond - Growling, Kevin says - "I would like to point out that in addition to the uptick in optimism, I have seen numerous stocks go into new high territory in mediocre and/or low volume. This signals a lack of demand does it not? It would seem to me that the market at the least needs 'reset', to at least take stocks down a few notches and bring in some buyers....the buying seems to be drying up now. All that needs to happen next is for selling to take over."

My response - Interesting points - thanks for sharing them!

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Index Check

by 6/30/2005 12:34 PM
Stocks quoted in this article:

The selling I noted earlier abated as the broad market indices neared breakeven. Here's where the major indices stand...

At first glance it may look like a number of sectors are on the move, but make sure to note the scale...Networkers are the "biggest" decliner but that loss is still below one percent - but that does erase most of yesterday's gain...Oil has reversed and oil related stocks are getting a bounce with both the OSX and XNG gaining more than one percent...

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