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Archive for February, 2010
February 2010 News Brief
SQUAWK BOX LEMMINGS
The more and more I watch and listen to the financial advice shows on TV, the more I realize how much closer to entertainment they are than to advice.
A prime example that occurred as recently as last week was Google’s earnings announcement, where the stock blew away earnings, but its guidance was less than magnificent. The stock immediately broke through its 20 and 50 day EMAs to the downside.
A number of advisers on one particular show which I’ll not name, but rhymes with “past honey” opinioned that “Google looked great at these levels”. Basically recommending what many financial advisers continue to do, that if it was good at say $600, it’s a bargain at $550.
Theoretically true, it is indeed cheaper, in much the same way that as a knife falls, the closer it is to the ground, the easier it is to catch. In either case however, I wouldn’t put MY hand in the way of either. There is a strong psychological urge within us to seek the best deal we can, wherever possible.
Once in a great while the opportunity to buy at a discount comes along, but I contend you’ll have the most success with this method when the stock in question has dipped, but turned back up without breaking either of those 2 critical EMAs, the 20 and 50 day.
In the graph below, the red arrow and box illustrates the danger of catching a falling knife. The green arrow and box show the potential buying opportunity that existed back in early November 2009, where the stock dipped, but didn’t break its EMAs. The subsequent rise, foretold that the run was not yet over.
Use this as another example of your cautionary tale.