Rev Shark:
Buy the Stocks That Don't Follow the Leader
1/18/2006 9:08 AM EST
"Problems are only opportunities in work clothes."
-- Henry J. Kaiser
Earnings season started last night with a resounding thud. Intel and Yahoo disappointed and are selling off sharply. Vigilant and astute analysts are issuing totally useless downgrades now that the bad new is known and being priced in.
It looks pretty darn dismal this morning but this sort of action is what creates great opportunities. It's always nice to ride stocks in a strong uptrend, but that can't last forever. Eventually we need some sort of shakeup that produces a new crop of opportunities.
On a day when leading big-caps are being dumped vigorously there are always other stocks that are unfairly punished as well. The market does a poor job of distinguishing between the company-specific problems of Yahoo and Intel and the overall health of their industries. It is likely that both Yahoo and Intel are simply facing company-specific threats from the likes of Google and AMD. That doesn't mean the problems aren't real but it may be more of a shuffling of the leaders than an indication that the chip industry and the Internet sector are falling apart.
There are going to be some good opportunities in smaller and secondary stocks that are unfairly dumped along with the leaders. If you are adept at finding the stocks that are doing well but are suffering sympathy pains, you will be in good shape.
The key now is to let this selling play out and watch for bottoming action in your favorites. Have a shopping list ready but don't be too quick to buy weakness. Remember, the key to making the money isn't to buy low or cheap, but to buy when stocks have some upside momentum.
Be very careful today about being sucked into the uber-bearish arguments. Yes, a couple of key leaders posted very poor reports but they are not necessarily indicative of problems in the broader market. There are indeed problems out there other than Intel and Yahoo -- crude oil over $67 again, geopolitical issues with Iran and a major meltdown in the Nikkei -- but all this bad news simply means that we are going to eventually see some good entry points for a variety of stocks.
Timing and patience is what we need most at this point. I would not be surprised to see a fairly good bounce off this weak open but unless you are a very short-term trader it is likely not the time to buy.
Overseas markets were hammered, gold is down sharply and oil is up. Buckle on the trading helmet; it's going to be a rough one.
Position: Long Yahoo (for a quick trade)