Tuesday, April 29, 2008

Stock Picks

All's been quiet on ETCW! lately. Your wondrous authors have been too busy coping with real life to put much time into the ole' blog.

Anyway, in my spare time, I've been watching my fortunes in E*Trade (ETFC) float up and down...okay, mostly down...since late November. In fact, I managed to pick a local maxima when I bought it. As it has shed most of its mortgage debt, it's still probably a good buy considering how low the price is, though it's now turned into a long-term investment.

Also, I've been studying up a bit on technical analysis, for what it's worth. Essentially, it's a mathematical, analytical approach to stock analysis, though one that doesn't stand on its own. You need also be aware of prevailing economic conditions (our little recession), sector trends (such as booming oil), the quarterly earnings reports, and any issues with the company's management. So, that said, here's a little prognostication I'm going to make based on my rudimentary understanding of stocks.

Get ready to short Google (GOOG). Google's price is booming right now due to a much better than expected earnings report and a general sense of buoyancy in the tech sector (it's fared better than the Dow). GOOG's also pushed along by it's forward P/E as well as the general mysticism associated with the company. But, here's the problem I see coming down the pike. GOOG is approaching being overbought, and its momentum will start to burn out soon (see the Relative Strength Index plot). When this happens, the price will deflate, spurred on by lackluster advance GDP numbers for the 1st Q of 2008 to be released tomorrow. Another thing that's tipping me off is the slow convergence of the Slow Stochastic Oscillator (the chart below the RSI plot). Basically, when the blue line is above the red line, there is positive pressure, but when they start to converge, and the red overtakes the blue, the price is going to drop. Of course, just looking at this one tool you don't know if it's just a momentary pause, which is why you need to look across a variety of indicators. Additionally, checking out the Money Flow Index (GOOG), the divergence between the jump in price and the MFI is telling me that this is probably a weak advance. Now, that's a 1-year retrospective analysis, and I'm not looking to short Google for the next year. So, looking at the 3-month chart, the situation looks the same. All these factors put together, and you've got the making of a reversal. My superexpert financial advice: short Google.

Admittedly, this is a bit crude and elementary, but I think an empirical approach seems to make the most sense if you want to learn about stocks. Pick a few stocks to watch, learn a little bit, form a hypothesis, then watch what happens.

Don't want to buy stocks? Afraid of inflation? Get a hold of some TIPS.

Note: Past performance absolutely guarantees future performance. Buy Buy Buy.

2 comments:

EchoWhiskey said...

you never approved my last comment... bastard. I recommend buying EWZ. Brazil is so hot right now.

Brice Lord said...

You're right, because I don't have to approve comments since I'm so freedom-loving. You posted something in the pregnant metro comment, and then this one. I'm not sure what you want out of me.