SHREVEPORT, La., Feb. 28, 2005 (PRIMEZONE) -- StockPickReport.Com (IARD #119079, http://www.stockpickreport.com - the web's only non-mainstream stock rating service), rates Nasdaq 100, QUALCOMM Incorporated, Wal Mart, Amgen Inc.
STOCKPICKREPORT RATINGS:
Nasdaq 100 (AMEX:QQQQ) - SELL
http://www.stockpickreport.com/abrating.php?sym=QQQQ
QUALCOMM Incorporated (Nasdaq:QCOM) - BUY
http://www.stockpickreport.com/abrating.php?sym=QCOM
Wal Mart (NYSE:WMT) - WEAK SELL
http://www.stockpickreport.com/abrating.php?sym=WMT
Amgen Inc. (Nasdaq:AMGN) - BUY
http://www.stockpickreport.com/abrating.php?sym=AMGN
Monday, February 28, 2005 StockPickReport Commentary "Strategies for Buying Oversold Stocks"
Often when reading market commentary the writers will always try to come up with a reason of why the market is doing what it's doing. "That market is up because crude oil is down". Then the next day, "Crude oil futures rose so the DOW was down 90 points on the day". Then, just as the "experts" thought that oil was under control last December, many oil and oil service stocks have gone up by 20% since then.
We know that we are no better off after watching a week of CNBC than we were before. Remember, the market can stay irrational longer than you can stay solvent. What most writers will never admit is that they don't know why the market does what it does. They make something up that they think makes sense. Then, the next day, they change their tune.
It's the never-ending saga of Wall Street.
Recognize what is happening, and adjust your portfolio accordingly. Remember, people are irrational. People are emotional. The market is therefore not efficient, regardless of what I was taught in Investments 301 about efficient market theory. We cannot create opportunity; we can only take advantage of it. Sometimes in the market there is more opportunity than at other times, and sometimes the trades you don't make are just as important as the ones you do.
Let's take a look at something called a weekly distribution. Do you ever remember taking a test or having someone you know take a test and everyone in the class practically failed it. Well, obviously the professor can't fail the entire class, so they come back and say, "I just distributed the grades over a bell curve". So, now your 38% is magically a C+ and they guy that got 50% all of a sudden has an A. The same bell curve can be used for stocks and the markets.
Let me show you an example. Let's take a look at a stock called OSI Systems, Inc (OSIS). Take a look at this 6 month chart:
http://finance.yahoo.com/q/bc?s=OSIS&t=6m
One can take the prices of a stock over the last 10 weeks and make a bell curve of how overbought or oversold it is at the moment (An "A" vs. a "D"). Note the very fast move from 16 to 22 in November. That move took the stock to the 100% overbought level on a bell curve. The equally sharp move down from January to February took the stock to 100% oversold. Hmmm, this stock rallied from this point before.
Would we ever want to buy a stock that's 100% overbought? Almost never. How about buying a stock that's 100% oversold? Sometimes... As long as it has support at that area. Remember, stocks can become 100%, or even 200% oversold if they are falling like rocks.
So, now we know that fast moves in one direction are unsustainable and snapbacks often occur. Well, what if we took a weekly distribution for all of the stocks in the entire market? Could we use this to "time" the market???. BUT WAIT! All the experts say you can't "TIME" the market. "No one can time the market"!!!!
Well, let's see if we can do just that. Right now, taking into account all of the stocks on the NYSE and Nasdaq, we are 7.21% overbought. That is very neutral. But wait... in December of last year we were 40% overbought, the most overbought on a weekly distribution for all of 2004. On January 1 it was 28% overbought, then we fell to 14% oversold and now we're at 7.21% overbought. So, why did we have that sharp sell-off in January? The market got stretched too far too fast in one direction and snapped back. That is all. So, should the market get to be 40% overbought again what action should you take? Tighten your stop points and take profits.
But what about if the market is oversold? Well, let me show you where this recent bull run of the past few years really started. The first indication was in July 2002, when stocks reached an unprecedented 78% oversold level. That coincides with the first "bottom" on this chart:
http://finance.yahoo.com/q/bc?s=SPY&t=5y
So, can one really "time" the market? The best answer I can give you is that we can certainly identify when the market is overbought and oversold and manage our risk accordingly. When it's overbought we tighten our stops and take profits and when it's oversold we jump in with both feet into more volatile stocks that have the ability to make fast moves.
By knowing where you are in the market, you'll be able to tell if not making trades is your most profitable decision, or if jumping in when everyone is jumping out could be the best trades you make all year.
If you have questions or comments, please email don@stockpickreport.com.
For More Commentary Go Here: http://www.stockpickreport.com
All commentary written by Don Harrold, Senior Analyst.
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StockPickReport.Com ranks stocks with technical analysis. These ratings do not indicate a "long term" view. These ratings reflect an opinion for the short term. These ratings may change based on market conditions.
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Finally, StockPickReport looks to news sources like, http://www.dallasad.com/Fort-Worth-Investing.php for much of its analysis.
If the links to our ratings above do not work, please use these:
Nasdaq 100 (AMEX:QQQQ) - SELL
http://www.bigtimenews.com/russell1000/QQQQ-Stock-Quotes-News-and-Research.php
QUALCOMM Incorporated (Nasdaq:QCOM) - BUY
http://www.bigtimenews.com/russell1000/QCOM-Stock-Quotes-News-and-Research.php
Wal Mart (NYSE:WMT) - WEAK SELL
http://www.bigtimenews.com/russell1000/WMT-Stock-Quotes-News-and-Research.php
Amgen Inc. (Nasdaq:AMGN) - BUY
http://www.bigtimenews.com/russell1000/AMGN-Stock-Quotes-News-and-Research.php