By Clyde Noel
Stock Report
The party’s over because stock prices fall faster than they rise. Stocks have fallen three straight weeks and the selling continues as investors are more content to hold cash and bonds, and not stocks.
After a downbeat forecast from Intel Corp. last Friday, stocks took a tumble. Shares of Intel plunged $5 to $22 when the company cut its revenue forecast, citing lower-than-expected earnings.
For the week, the Dow Jones industrial average lost 334 points or 3.4 percent. The Nasdaq composite index finished the week at 1,535, down 80 points or 5 percent. The Town Crier Index dropped 41 points or 4.2 percent.
With war scares between India and Pakistan, Israel and Palestine and the United States and Iraq, on top of a major breakdown of confidence in corporate America, investors are unwilling to pay for future growth and that makes the party over for growth stocks. Growth stocks will never get back to their highs within the next couple of years.
By the end of last week, 42 of the 50 stocks on the Town Crier “50″ showed another loss, and 36 (72 percent) are lower since Jan. 1.
Investors have been hit with a constant stream of reports of corporate malfeasance. Last week’s news that Tyco’s CEO was indicted for possibly conspiring to avoid $1 million in sales taxes and using company money to buy homes and artwork for corporate officials without telling shareholders was another blow to stockholders’ faith.
Many investors are having vibrations that stocks will slip into a deeper trough of discouragement before a recovery takes hold. With investors losing money each week, they have reasons to feel betrayed by high corporate salaries of CEOs reporting negative profits and unethical shenanigans.
Shaeffer’s Investment Research has established a support level where investors are expected to start buying stocks again. The elements of technical analysis, which studies prices, volume and charts, stated the resistance levels should stop for the Dow at 9,800, the Nasdaq at 1,480, and the S & P at 1,000.
There is a bright spot in those support levels. They could be the level of capitulation many have been seeking in order to establish the near-term bottom. Capitulation is characterized when investors have dumped so many stocks, there is nowhere to go but up. To have it, you need high volume, which we still don’t have. You do have volume in two local stocks, if that means anything. They are Intel and Cisco. Could they be at their bottom?
Noel, a seasoned expert, covers the stock market for the Town Crier. You can reach him at 948-9000, ext. 820.
