Hyper-reaction to earnings announcements was one market peculiarity that I pointed out in Friday’s blog post. This trend continued today after hours as 2 “hot ” stocks – RAX and MAKO – were slapped down (MAKO almost 30%) due to imperfect outlooks for the near future.
Understand something – both companies are showing impressive growth and in a market uptrend, both will likely outperform a stock like CVS (no knock on CVS!). However, in a down market – and we are in the beginnings of a downtrend (could end tomorrow who knows, maybe Ben Bernanke will spout something silly) – these priced to perfection growth stocks will sell on any small blemish (or big blemish) as those who bought and made 20-30% in the last few months will look for reasons to lock in gains. Furthermore, momentum traders tend not to buy in general market downtrends so that leaves only sellers at these times.
What does this all mean? It means we are in dangerous times for individual shares. I will likely trade indices via ETFs if I go long at all in the near future, unless I find an interesting micro cap that does not have frantic investors holding shares (I will continue to kick myself in the a** for not hanging on to RMCF and buying it for clients – in fact, for 2 boots in the a**, I was eyeing MAKO at 9.65 when they had a follow on offering of shares and bought it for only 1 aggressive client around 11 and selling in the mid 20s).
Be careful what stocks you own – if your stocks appear in some publication’s top 50 list, it’s likely a popular momentum stock. If your company’s earnings are coming out soon, have a plan before hand of how you want to handle it, especially if it’s a big position.
All in all, the hyper-reaction of stocks is an overall market negative and a sign of very shaky stockholders.
Though I am not going to post investments real time here, as I don’t want this to become a trader’s blog (though I welcome your thoughts and feedback below), I will mention frustrations of positions I have exited and positions I may enter. And I occasionally mention positions that I or my clients own when discussing the market overall.
I will mention GDX, which I was stopped out of today (should’ve nixed it sooner) which we didn’t hold that long. Gold is doing an admirable job holding here and if it does, it may scream higher and if it doesn’t it may scream lower. I may re-enter on a move up, or attempt a short term short if it drops. However, I’m also keeping my eye out for a false-downside breakout which would completely clean out this market both ways (that’s the job of a false breakout) and send it up (or vice versa?).
I Am a Learning Computer
In a world of money printing this has gotten interesting. I’m learning that I must take profits sooner (thanks Ben for teaching us to all be short term traders!) as I’ve watch a number of 20% gains reverse. It’s frustrating I know as some of you may be frustrated also but I am also adaptive and a “learning computer,” just like Arnold:
I hope you are a “learning computer” too! No time for focus-weakening frustration – it’s time for more thinking, and less acting (me included). Believe, me, I get super- frustrated too and I’m looking for non-market-related investments for myself (my own business, other businesses, etc) but there are opportunities in the stock market if you think for yourself and look around.
At one point this year, while I was up ~ 8% – while less than 50% invested – I thought about selling everything (I focus more on risk management than high returns). And looking back, 50% invested with 8% return would mean 16% return 100% invested – not bad. I didn’t do that and have given back lots of gains (due a lot to personal overweight in gold-related investments and a few poor exits). I learned something from this as painful as it was.
At the time of publication Chris Grande owned or controlled the following securities mentioned in this article: NONE (FYI: sold GDX earlier today)