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"Review of My Summer Trading"

[written September 14, 2000; sorry, hard to be timely with stock charts]

The summer is virtually over and we're halfway through September. September and October are traditionally the most feared months, but October seems to be more benevolent recently than history has dictated in the past. At least the low volume and whippy action is almost done with.

I find my account equity to be lower than it was after the Naz crash. I know what I did wrong, and it registers in my mind for future summer trading. There is no room for indecision in summer trading, because frankly, the price swings are not supported by volume, and so you end up victim to thin spreads that change wildly.

After the media spent the winter capitulated and proudly announced the NASDAQ would never go down, it promptly did so, bigtime, and thus gave the media a whole summer to spin yarns about the death of dotcoms. Oh, we just never hear the end of it from people who are as clued in to the market as a zoo monkey. "Is the NASDAQ Over?" "Easy Money, Gone!" "He Lost Millions and So Will You, Stay Awayyyy!"

Business to customer stocks certainly didn't do very well this summer. But the prevailing opinion is that competition and customer expectation drives down prices to such levels that it's hardly profitable anymore. Stocks that deserve to be hammered are indeed getting hammered: PeaPod (PPOD, online grocer), Buy.com (BUYX, low margins galore), etc. etc. But everyone knew these stocks wouldn't fare well with large market caps. So what's the surprise? How is it that the media finds logic so breathtaking?

Certainly the devastating effect of reality will take its toll on B2B stocks in the future. The scum of the scams have already been punished, but I think there is still a lot of inefficiency in the market. I've seen firsthand how B2B companies are raping their clients with their license/billing fees. B2B in my opinion helps all companies as a whole with productivity, and it will continue to make their businesses leaner and meaner. As far as the companies supplying the tools to them, they will be select and few. You gotta think at this point that companies like Ariba (ARBA) and i2 (ITWO) are a couple of the leaders (of course, I base that entirely on stock performance).

Oh, and don't think a deadened market stops Mr. Joe America and Miss Jane Friendly from stopping you at the grocery store to give you their advice on what to buy and sell. Endless stock tips, pointers on how to trade, even lessons on how the internals of the stock market work. Everyone knows how to play this game and everyone knows everything about it. Gosh, you'd think everyone was a frigging millionaire with the skills they claim to possess.

NASDAQ (see my chart on COMPX)

Meanwhile, the NASDAQ rallied off its lows during the summer and hit 4200 at one point, 1000 points or so off the low. And indeed, many stocks did very well -- but hey, they deserved it. Those are the stocks you keep an eye on in the next bull run. People want to own them, even in the summer doldrums. See the chart in the link above (it opens in a popup window):

Redback Networks (see my chart on RBAK)

I trade the same stocks every day. It helps that I know their price and volume and spreads and whatnot will match what's most comfortable to me. They're easy for me to trade. Some stocks you just always lose on, and as much as you may want to, staying away is probably best. For me, one such stock is Redback (RBAK), a stock that has wild swings of 10-15 points at times, and is nasty for me to trade. Great company, perfect position, investors know this. Of course, it had a HUGE rally this summer from the 50's to the 170's. But I couldn't have handled the huge 10 point shakes. For now, it's broken the summer trend so I think it's gonna get rough for this wonder stock, unless it finds support soon.

I overtraded this summer. Bought and sold, got caught on dips and spikes, traded like a newbie. It's inexperience. If I'd just bought at the bottom and then gone on vacation with some of my favorite stocks, I would've come back and had tidy profits.

Or would I have?

Tibco (see my chart on TIBX)

Well certainly, one stock I trade a lot is Tibco (TIBX), very nice but sometimes has large spreads or won't move for long periods of time. TIBX pretty much keeps sites like yahoo.com going, so I assume investors see it as a leader in the Internet backend movement. Hell if I know, I just trade it. If I had bought it early in the summer, I would've seen it go from the 30's to the 120's. RBAK and TIBX did near vertical runs. Clearly some stocks you just hold.

BEA Systems (see my chart on BEAS)

Another performer this summer was BEAS, which is a foreign-based B2B company. I loved their investor kit. Their brochure talked about how they handle much of the traffic for companies like FedEx (tracking), E*Trade (all those orders!), Priceline.com, and many foreign companies like Ericsson and Telstra. Now, perhaps this is just a lucky case, but it seems as though this company is together and the stock price recognizes that. But I have to be careful because a lot of good companies AREN'T recognized. However, BEAS grabbed me with their direct presentation and I know exactly what they do, unlike some OTHER companies that don't really like to define their product or service. :P Wish I held onto this one instead of scalping small points out of it.

Efficient Networks (see my chart on EFNT)

But who's to say? Efficient Networks (EFNT), which sells DSL products that I like, had a big run this summer but has had the floor drop out of it recently and now it almost looks like it's about to collapse. However, as you see on the chart, it had a volume spike and is still above a trendline (albeit a weak one), so if it can rally, it'll be okay. DSL stocks have been trounced recently (perhaps so people can buy up shares for next week's big DSL conference), probably because it is once again a business to customer business where DSL is just a stepping stone technology, soon to be outdated by newer, faster techs, I'm sure. The hype of DSL may be over as far as stocks go. But it's not quite over yet, the chart for EFNT says...

Advanced Micro Devices (see my chart on AMD)

Oh, what happened to my sweet baby AMD? They've executed perfectly and are running circles around Intel (INTC). They've slashed prices on their CPUs beyond what Intel can keep up with, so they must be gaining marketshare. Their future looks bright with new server and mobile chips to fill in their product line. So why has the stock crumbled from the 40's to the 20's? Well, all is not lost...perhaps the trendline on the chart will hold. This is supported by a volume spike. Otherwise we either double bottom off the last major low, or this selloff is part of the second wave of a larger selloff. See the fall from 47 to 27, then the bounce up to 37, perhaps leading to a secondary wave of another 20 points, to 17. That would amaze me, but I'm looking at possible scenarios. AMD, by the way, is a bitch to trade. NYSE stocks aren't fer tradin', maw, dere fer position holdin'! I still feel AMD can rally hard on excellent fundamentals, but I've had to stay away from it while I watch it fall more and more.

Semiconductor Index (see my chart on SOX.X)

Speaking of semiconductor stocks like AMD, the SOX.X (semi index) has sold off large as well. But you can see on this chart as well that the SOX.X may have bottomed today and can still be in good shape if it follows through near-term. INTC, on the other hand (sorry, no chart), broke its summer trendline downwards and really looks to be in deep doodoo. I would like to think this is because INTC is getting beat handily -- however, as INTC hurts, so would the Dow, NASDAQ, and even AMD. So maybe that ain't a good thing!

Internet Initiative Japan (see my chart on IIJI)

Glad I didn't hold Internet Initiative Japan (IIJI). While I love the company, its stock has been the pits ever since I made some of my first big profits trading on it. I guess investors don't like ISPs right now, particularly since IIJI has invested a lot in infrastructure, which puts a bigass red ink pen on the financials. But the chart looks terrible and needs to find some strength. I might've tried holding this one during the summer, and unlike TIBX or Ariba (ARBA) or RBAK, I would've been hurt.

America Online (see my chart on AOL)

And an example of a sideways stock? AOL. I guess people are right -- AOL isn't going anywhere until this merger with Time Warner is worked out. Even though it sold off a lot, you can see from the chart that it is still okay in the long term and that also the triangle meets up sometime in October. I don't know if AOL has earnings around then, or if the merger news will be finalized then, but right now it looks as though AOL is waiting for something to happen then.

Okay, this must be boring. The emphasis of this Soapbox is the charts themselves and not so much this actual filler text. I personally just find it fascinating to draw these lines on charts and see how they apply so well in keeping millions of shares in an organized pattern. I think it's neat to see how chart formations line up with major market events. I think that even someone who has no interest in stocks could see that there's an order to the stock market and that you can apply some non-emotional element towards trading it.

The overall conclusion is that summer is a mixed bag. I said this even before summer started. But I needed this summer to trade through it on an informed basis, so I'd understand what I'd need to do to trade successfully during the summer months. Next summer I'll be ready, and might even just take the whole summer off and have fun. It doesn't seem as though there is risk of further downside movement in the summer in the broad market, so just holding your favorites and coming back later might be a great strategy.

Then again, it all seems so easy in hindsight. What a bitch this can be!

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