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Have You Seen This?

 

 

Your Daily Profit

 

December 10, 2008

 

*****Moving Averages

*****Saved by Zero?

*****Solar Stocks

 

Dear Investor,

 

After flirting with 9,000 for a couple of days, the Dow Industrials turned tail and closed lower yesterday. Still, there has been some encouraging action. We’ve seen stocks move higher despite bad news, which is a sign that the bad news is already accounted for in stock prices.

 

The recent rally failed right at the Dow’s 50-day moving average (MA). If you don’t know a moving average is just that – a moving average of closing prices, in this case of the last 50 days. The 50-day moving average is often used to identify short-term trends. When prices move above the 50 day MA, it’s taken as a bullish sign. When prices fall below, it’s bearish.

 

You can easily find apply a 50-day MA to chart at Yahoo! Finance. Click on a 6-month chart for the Dow Industrials and then choose the “technical indicators” from the list of drop-down menus at the top of the chart. Then select “simple moving average”. The drop down menu should offer you the 50-day MA.

 

You’ll clearly see that the Dow dropped below its 50-day MA back in May. It then flirted with it in August and part of September before leaving it behind until Friday and Monday.

 

Of course, moving averages aren’t 100% reliable. Nonetheless, they can offer important clues as to what direction prices are heading.

 

*****Yesterday’s failure to move above the 50-day MA doesn’t mean the Dow is headed for another massive decline. But it does send enough of a warning that you probably shouldn’t take any new upside positions first thing in the day. Let the Dow find a support level and start to rally first.

 

*****It appears that a bailout plan for the automakers could be announced in the next few days. Even though the market has rallied on the possibility, don’t be surprised to see stocks sell off when a bailout is announced. But the rumor, sell the news may be a very old saying. It’s also one of the most reliable Wall Street maxims you’ll ever hear.

 

*****It’s amazing, but the shortest T-bills are now paying zero interest. Yesterday, the Treasury sold $30 billion in 4-week bills at zero interest. Even more amazing, in trading after the auction, interest rates on some of the bills went negative. It actually cost money to own them. 

 

As one money-market mutual fund president said “Down slightly is the new up.”

 

It’s nice he can maintain his sense of humor. But there’s not much funny about bonds paying nothing. It tells you that the big money is absolutely risk averse. To them, there is no guarantee in any market at any time. Clearly, that will have to change for stocks to make any real headway.

 

And by its very nature, it has to change eventually. Institutional investors will become less risk averse and start seeking actual profits at some point.

 

*****I’m starting to kick the tires on some solar stocks. Not buying, just looking. That’s because prices for solar panels are falling. One of the biggest solar companies, Suntech Power (NYSE:STP) estimates that its prices could fall 25%-30% in 2009.

 

That’s significant because price is the biggest barrier for large scale adoption of solar technology. 

 

Obviously, it’s the economic environment that’s forcing the prices lower. But if the industry cuts prices in half by 2012, as Suntech CEO thinks possible, solar power suddenly becomes a competitive energy source.

 

Of course, such a drastic drop in cost will drive marginal players out of business. But that’s how these things work. In fact, a solar bankruptcy or two may be the buy signal for solar stocks. We’ll see.

 

*****Registration for Stock Summit 2008: Profits After the Fall opens to the public today. We’ve already filled our first 500 spots, so I’ve made arrangements with my ISP to let more of you in the door. But with the number of investors who are signing up every day, I can’t guarantee you’ll get to sit in for Benson’s profitable insights unless you register now.

 

So please, take a minute and click HERE to reserve your spot for Stock Summit 2008: Profits After the Fall. You’ll be glad you did.

 

*****As always, keep your questions and comments coming. Here’s my email -- [email protected], thanks!

 

Best Regards,

 

Ian Waytt

Editor

Daily Profit

 





Posted 12-12-2008 12:51 PM by Ian Wyatt