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Greetings, fellow Pro-fundity team members -
7-9-99 Page

    This week's Editorial Guidepost:

  1. Last week we covered the third installment on conservative option plays. A reader who jumped in last week studying our offering on options said he was a bit confused. Without having studied #1 and #2, its no wonder #3 would be difficult. We have chosen this week to put all four options tutorials in a "member" link off the home page for easy access. None of us will have to try to remember what we read last week to understand this weeks offering. We can read it all together, and return for review as required. Hey, we're trying to make this easier. We're sorry for any confusion resulting from our quick re-introduction to a topic that requires due thought and consideration. Thus, the fourth options segment is not in this Guidepost but can be accessed from the Options Tutorial link.

  2. We wrote the options segments for the beginning investor (trader). The novice investor has been ignored in this arena. It is not rocket science, but can appear so with horror stories of risk and loss and defeat. We urge you to carefully study these four Options tutorials and watch for more help from the Provident Investor in coming guideposts. Some exciting ideas and helps may be available. Please share your opinions on this matter with info@pro-fundity.com to help us calibrate with the needs of our subscribers.

  3. For our "Chart Study" this week, let's revisit last week's chart example of "opportunity," breaking outside the traditional rolling stock pattern. We showed the following price pattern on SK as one of last week's offerings:

    4. SK - Price Bar Chart
  4. We asked:
    • Why would we include a ticker with this price pattern on a "Rolling Stocks" web offering?
    • What is more important, finding a ticker that has rolled in the past, or a stock poised for a near-term up-tick?

    • Do we want to make money or satisfy some philosophical strategic argument?

  5. Lofty questions. We then listed the reasons we saw opportunity in this price pattern. This was a characteristic "breakout" stock, with conditions ripe for an uptick in the price, not a roller. The reasons were:
    • Stochastics moving sideways, typical of a trending stock.
    • Strong BOP support.
    • Strong TSV support.
    • MACD crossover suggesting a buy condition.
    • Strong fundamental analysis on SK: EPS, relative price strength, accumulation, sector and management strength. This is the first hurdle our picks must get over before we ever look and the charts. What this means is that SK is a "value" stock, one that has inherent value that will survive the turbulance of the market.

  6. How'd we do? We had a very good week with 8 winners and only two losers, but one of the losers was SK, last week's feature, dropping a whopping -26%! What went wrong? That is the topic of this week's stock study. There are lessons to be learned.

    7. SK - Price Bar Chart

  7. We quote from the "Rolling Analysis" tutorial: "News over-rides everything else, fundamental, technical, or any other analysis. A news item can cause a stock to go either up or down with no apparent logic." Take a look at the news when the stock dropped:
    • July 2 (Friday) price at close $19.13
    • July 6 (Tuesday after the holiday) price closes at $18.80. Then at 5:36pm, after the market had closed, Safety-Kleen announced 3rd quarter operating results, "...net income was $0.30 per share for the quarter... an increase of 58% over $0.19 per share... reported in the prior year." Sounds okay, right?
    • July 7, 1:19pm, "Safety-Kleen fell to $14 on lower than expected third quarter net income. Income for the quarter was 30 cents a share, lower than the 32-cent average estimate of analysts."

  8. Nothing about the company changed. Its inherent value remained intact. No changes in management, strategy, or resources. Yet its price drops on increased earnings! Why? It missed analysts estimates by 2-cents! That, good friends, is the irrationality of the market. As we've said, it will jerk us around from time to time just to keep us honest.

  9. The good news is that since we chose a value stock to deal with, patience will be our strongest ally. The second bit of good news lies in the performance of two other picks last week; PSEM and ELNT. These were the other two "breakout" picks for the week, with patterns not rolling but such strong technical support we felt the next moves were to be up, not down. PSEM increased in our 7 day window +14.4% and ELNT +2.3%.

  10. Our number one lesson is to pay attention to the news as we endeavor to trade our way to higher returns. It is simply in our best interest to learn all can about companies with which we trade. We can learn when quarterly reports are to be issued which may have helped us with a purchase of SK. However, this cuts both ways where 2-cent earnings over the analysts estimates could have kicked the price up. We just need to understand the rules of this game.

  11. This weeks picks are all rollers. May we continue to learn by engaging in the process. Paper trades will provide this experience with very low cost (no cost, save the time invested).

    Understanding :

    It is our intent to help our subscribers understand market strategies well enough to make informed decisions and understand the risks.

    We provide TC-2000 tutorials to members. See the Member Login page.

    Be diligent...
    Take action!



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