The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

22 November 2006


Reviewing the 'recommendations' in this month-old post encourages me; whereas I might struggle to regain lost momentum writing for this blog, the market continues to work for me.

In fact, it works for us all.... if you do not think too much. But that is a recurring problem that seemingly has no answer. The time to think is before and after the call to action (buy, sell); to paraphrase Jesse Livermore, "It is the sitting, not the thinking, that makes money." And, try as I might to encourage readers to recapture lost innocence -- to view again the unlimited upside potential of this or that opportunity (granted sufficient time, of course) vs the limited downside -- well, I captivate and convince few readers. Investors continue as they always have, arguing against a trend (up, down, or sideways) and refusing adamantly to climb aboard.

This 'action' is folly. Really, what do you fear? That the moment you purchase, the stock will decline, the trend expire? So what? If the decline exceeds your acceptable trading parameters, sell it and move on. Now, was that so bad, so difficult? Oh, you are still fearful? The market has climbed too far, too quickly? Then scale in; purchase smaller positions than you typically would. But get in there; get off your analytical duff; make money!

The current market up trend now is ~4 months old. Yes, it becomes long in the tooth, as trends go. But it has been so powerful, so profoundly bullish to date, that even if the rise were to end today, many more weeks, even months, would transpire to build a top. Meanwhile, many stocks will continue higher.

And that is the secret. Focus your attention on the investment opportunities, not the general markets. I will re-phrase that as an analog: when grocery shopping, your concern re the (super)market is the hours it is open; you go there only with shopping list in hand. If that list includes items temporarily not available, you flex and purchase other similar items or do without altogether. Try to perceive the investment markets similarly: open from 630am to 100pm pt, they exist to serve your needs. Trends, such as the up trend of the past 4 months, merely make it easier to purchase those items you seek, make quicker-than-typical profits, and sell the position to another buyer; in addition to direction and trajectory, trends provide liquidity. What more do you need to know?

I mentioned I just now reviewed the list of recommendations from last month. What do I see now...?
Ambercrombie & Fitch/ANF -- In its first meaningful correction since emerging from its ~1-year base. ~$70 should prove itself to be support. Failure at that level, would usher in a deeper test to, say, $65-63.

American Commercial Lines/ACLI -- Emerged in early-October from a picture-perfect intermediate term (IT) base, and now trends higher. Until the extant up trend expires, all declines should be of short term duration.
American Healthcare Services/AHS -- Powerful pattern that appears headed, in time, for its all time high trade of ~$35.
Apple Computer/AAPL -- New all time high and close yesterday. One of these days, the stock will gap up on the opening by ~$20-30.
aQuantive/AQNT -- Well, the last earnings report failed to be the impetus to propel this stock over $30. Nonetheless, the stock continues its bullish ways, building an even larger base. Immediate resistance at $24-25.
Chipotle Mexican Grill/CMG -- Doubters surround me re this opportunity. "But what about this or that?", they ask. I vote every time in favor of the markets' aggregate opinion. You might have concerns, but the market does not. At least not this season. It shou;d not be long before it too trades at all time highs.
Clorox/CLX -- Massive base. It will emerge sooner or later; it is very near now.
Colgate-Palmolive/CL -- same as Clorox/CLX
Coca-Cola/KO -- same as Clorox/CLX -- Broke out early this month from another picture-perfect IT base. Now it hesitates and consolidates that breakout. Great opportunity to buy more shares.
Garmin/GRMN --Questionable; might require a deeper decline - or more time.
Genentech/DNA -- Still building its IT base.
Google/GOOG -- New all time high yesterday; seemingly headed for above $600. And yet the doubters remain. Whatever.
Gymboree/GYMB -- Seems to require a new IT base; thus, a decline toward the mid-$30s could occur now.
Heinz/HNZ -- Good breakout from a powerful base. Hesitating briefly, before surmounting $50.
Intuitive Surgical/ISRG -- Continues to build its IT base.
Isis Pharmaceuticals/ISIS -- Exciting opportunity. New statin drug that has everybody buzzing. The stock climbs as a direct result. (Recall that the markets are a discounting mechanism; you invest today for tomorrow's results, tomorrow's profits.) Likely building now a short term base atop the larger base; $10 represents an excellent purchase point.
Johnson & Johnson/JNJ -- Hesitating, as it builds a head of steam to breakout above $70 into new all time highs.
Kimberley Clark/KMB -- See note re Clorox/CLX
Level 3/LVLT -- Continues to build a huge base. (Or so I hope :-)
PF Changs/PFCB -- A turn upwards from this price and setup resolves the pattern quite bullishly. But now is its moment of truth, or inflection point.
Quicksilver/ZQK -- Continues to gather momentum to bust through crucial, trend-changing resistance at $15.
Research in Motion/RIMM -- Seems to me investors everywhere worried about the wrong things. They simply missed this one. -- Sold. Yes, it still looks higher in price, but I frowned on its lack of volume.
Starbucks/SBUX -- A decline of sufficient depth, and I wil purchase more shares.
Under Armour/UARM -- Just like Chipotle/CMG, doubters surround me on this company/stock. The comment that really startles me runs something like this, "But the stock is up from its lows!" So...? Consider how the chart will look from x point in the future looking back to today (base this judgment on today's setup and pattern) rather than considering the past chart action bringing itself, including you and me, to a precipice. (Another example of me torturing syntax!)
Urban Outfitters/URBN -- Resolving its bullish pattern quite... bullishly. Yes, even deep declines in price equal as bullish action, IF you perceive the oft-mentioned and oft-desribed continuum.
Whole Foods Markets/WFMI -- Remarked earlier, subsequent to the company's last earnings report, that a deep enough price decline will re-kindle my interest.
Zumiez/ZUMZ -- Continues to build the afore-mentioned IT base.

To this list, I could add other possibilities. For example, Nucor/NUE...

[click on image to enlarge]

Really, now, "3 weeks tight"...? To my eye, this is a (short term) base atop a larger (intermediate term) base. Even a cup & handle pattern. If it is that, well one rule for the handle is that it does not endure beyond 3 weeks. What time is it? Oh, [it could go] right about now.

I welcome your questions and comments.

-- David M Gordon / The Deipnosophist


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