11/14 Kelly Letter Topics
Weekly market review
The bottom holds
Big bounce volume
Recession projections
The magic midpoint
LevMark Timer holds
Crocs is dying
Hope for Goldman
Importance of retest
Despite today being a doozy in the stock market, our holdings held up well. The Dow fell 1.6% and the Nasdaq fell 1.4%. That's the largest Dow drop since Sept. 22. The cause, evidently, was higher oil and a weaker dollar.
We did fine, though. Maxtor, my biggest holding and the gains I mentioned being most interested in protecting, never hit my $5.50 stop limit. It got to $5.51, a mere 0.4% decline. Even Ultra Semi did well, dropping only 0.8%.
Disney and Sun both fell 2%. In Disney's case, there's nothing to worry about. We're already up 90% and I have every confidence that the stock will push past $30 to give us a double. With Sun, well, I was early getting in. I put my buy order in at $4.20 when I should have waited for $4.05. It got as low as $4.02 today before closing at $4.07, putting us at a 3% loss so far. I'm still confident that we'll be able to sell at around $4.90 in the near future. One of my readers, Carlos, sent this from Red Herring:
Sun Microsystems' meteoric rise in the world of IT has taken a nosedive over the past few years, and some wonder whether it will be able to survive the long haul. But no one can dispute Sun's consistent commitment to innovation: its R&D budget typically hovers around 16% of gross revenues. No doubt, Sun's challenges are significant, but its recent lab breakthrough called proximity communications is a promising technology for the chip industry. By moving from wired to wireless connections between chips, Sun's clever invention is expected to lead to significant boosts in the transmission of data, and hence computing performance.
We'll see. I've thought for years now that Sun is the best bargain in the tech universe, but trading it has been far better than holding it. One of these days, it'll be a $20 stock again. I don't think that's a day coming soon, unfortunately, which is why I still see the stock as a trade rather than as an investment.
It's interesting that both Sun and Maxtor have been superb trading stocks in the $3 to $6 range. They are volatile, yet each company is real. Often with stocks this volatile, the company is absurd and it's a game of greater fool. Nobody believes in the underlying companies so it's just symbol trading. With Maxtor and Sun, the companies have genuine futures ahead of them and the argument for just buying and holding at these low prices is a good one. In the near-term, though, I'm going to trade them with the added security of knowing that the bottom won't drop out.
