Home | List of Articles | Submit an Article | Contact Us

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 shop and carried away all the signs and equipment, the stock is just $6.00.

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Regarding Merck, keep in mind that Vioxx was withdrawn in September 2004.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.

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 tom@mullooly.net or visiting http://www.mullooly.net/403b-plan.html or sign up to receive the market report and tips on how you can soundly invest your money at http://www.mullooly.net.

Related Articles:

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 ...

Stock Splits Can Be Very Profitable - Years ago (pre bubble days) a stock split was still something special. Although the idea of giving someone twice as much stock for half the price is statistically insignificant, the fact is an entire psychology sprung up around them. In fact, a book called the the Anatomy of a stocks split was written, and many si ...

Why Cash is Your Best Asset With Penny Stocks - When you start your Penny stocks trading career you first need to decide how much you are willing to invest. You need to remember that this is not a “sure-fire” income opportunity and that it is possible that you may lose everything, so be sure to not to invest more than you can afford to lose. That said whe ...

Could an Oil Slick Trip Up Stock Investors in 2006? - When you start your Penny stocks trading career you first need to decide how much you are willing to invest. You need to remember that this is not a “sure-fire” income opportunity and that it is possible that you may lose everything, so be sure to not to invest more than you can afford to lose. That said whe ...

Stock Market Research - There is a very large amount of stock market research conducted by stock market analysts, traders and other participants in the Australian stock market. All of the major stock broking firms conduct research as a major part of their operations and provide advice to their clients. In recent times, there ...

Buy Your Company's Stock ? - For some people, this subject conjures images of the devils in management at Enron, WorldCom and other bankrupt former high flyers. Mesmerized by the sweet profit projections coming from their corporate chieftains, all too many employees of these firms put all of their retirement nest egg in company stock. When th ...

Conversations in Management: Admiral James B. Stockdale - "The one thing I came to realize was that if you don’t lose your integrity you can’t be had and you can’t be hurt." -Admiral James B. Stockdale. This is a pretty good insight, but Admiral Stockdale wasn’t just talking about the vagaries of every day life. He was talki ...

Mutual Fund Versus Stocks - "The one thing I came to realize was that if you don’t lose your integrity you can’t be had and you can’t be hurt." -Admiral James B. Stockdale. This is a pretty good insight, but Admiral Stockdale wasn’t just talking about the vagaries of every day life. He was talki ...

For a Complete list of Articles with summaries Click Here