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Is
Your Mutual Fund Or Stock Trying To Tell You Something
As I
mentioned in my last message, if the support line of your mutual fund or your
stock is broken, beware! This is a very clear signal you should be hedging your
position, and perhaps consider selling a portion (or maybe even the entire)
position. Breaking the support line is the ultimate sign that supply is now
clearly in command. Your principal is now at risk.
Too much supply, and not enough demand, will bring lower prices. That is not my
theory.
That is an economic law.
Summer 2003: Krispy Kreme is on the cover of a major financial magazine as “the
hottest brand in America”
and the only Krispy Kreme store in New
Jersey opened. People had lined up overnight to buy
their doughnuts at this store! But sell signals began to appear.
Do you remember the very first time the company missed their quarterly earnings
forecast? They explained it away on the “low-carb diet” fad!
By the time the real story broke the next year, about some very real accounting
issues, the stock had already been sliced in half.
The support line had been broken back in March 2004, at 34. This week, as they
closed the New Jersey
Maybe this is too dramatic an example.
Take a look at a big blue chip, widely held stock. Merck broke through it’s
support line in August 2003 at $52. Since then, it has dropped to the mid 20’s.
It now flirts with $30.
Regarding Merck, keep in mind that Vioxx was withdrawn in September 2004. But
the stock broke support a year earlier in August, 2003. How did the market
know? Maybe it did, maybe it didn’t. But by the time the Vioxx story broke, in
late summer 2004, supply was firmly in control. No demand whatsoever to prop it
up. The stock dropped even further, from $44 to the mid 30’s on the Vioxx
withdrawal.
Hey, Merck is a fine company with GREAT fundamentals. The stock has struggled
for lots of reasons. All of which is unimportant.
Remember, Wall Street is a huge voting machine. Crowds are often wiser than
individuals and their opinions. So stocks like Merck can have terrific
fundamentals...and yet their stock can be sliced in half.
And we can see it, LIVE, when stocks break the support line.
From my perspective, as your advisor, I have a tough job. I’ll call you,
seemingly out of the blue, and tell you we need to get defensive with (or maybe
even sell) company XYZ’s stock.
It could be a stock you’ve owned for years. It might be the single biggest
investment you hold. Maybe you inherited the stock from your parents, or
perhaps you even worked there, or know someone who works there.
Regardless, when a stock breaks through the support line, it is a major red
flag and should not be ignored.
We often don’t know the reason for the decline, and may not know for some time.
There may not even be a news story about it. But we know that supply has taken
over and lower prices often follow. And since it is my job to protect what
you’ve worked hard to get, we sometimes have to make tough decisions. Without
all the answers. If we waited for the news with stocks like Krispy Kreme and
Merck, we’d be in serious trouble.
shop and carried away all the signs and equipment, the stock is just $6.00.
About the
Author:
Thomas P. Mullooly, President of Mullooly Asset Management, LLC (http://www.mullooly.net)
has spent over twenty years in the investment industry, as a broker and as an
investment advisor. Feel free to contact us to check out the relative strength
of your portfolio by sending an email to
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
or visiting http://www.mullooly.net/403b-plan.html
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articles by: Thomas
Mullooly
Article Source: www.iSnare.com
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