4 Iconic U.S. Stocks that Lost 49% While You Were Sleeping

Overnight, four iconic U.S. companies lost 49%. One of them, a reputable blue chip Dow component, wiped out four years worth of gains while investors were sleeping. What does this performance mean and can it be detected/avoided?

The biggest danger is one you are not aware of or can’t predict. For individual stock investors that’s gap down opens. Such overnight losses leave big chart gaps that often by-pass stop-loss orders.

October has been a particularly treacherous month as four iconic U.S. companies lost a combined 49% while shareholders were sleeping. Talk about a financial overnight coronary event.

In the night(s) from October 17 (Friday) to October 20, IBM (NYSE: IBM) lost 8.35% and wiped out four years of gains.

In the night from October 20 to 21, Coca Cola (NYSE: KO) lost 5.75%.

In the night from October 23 to 24, Amazon (Nasdaq: AMZN) lost 9.10%.

In the night from October 15 to 16, Netflix (Nasdaq: NFLX) lost 25.83%.

Is there a common trigger for all those coronary events?

Is it possible to detect and prevent owning stocks before an overnight collapse? 

The chart below shows IBM, KO, AMZN and NFLX side by side.

Trading volume spiked every time on the day of the coronary, but there was no consistent pattern the day before (which was the last day to get out in time).

A look at commonly used technical indicators – such as moving averages, MACD, RSI, percentR – also shows no consistent pattern.

Netflix and Amazon were unable to overcome their 20-day SMAs the days prior to the gap down, but Coca Cola ‘slept’ above the 20-day SMA the night before it fell out of bed.

Amazon triggered an MACD buy signal the day before it tumbled.

The only way to avoid individual meltdowns is to invest in baskets of stocks via ETFs or other index-based vehicles. The link below discusses which type of ETFs are best in this stage of a bull market.

The One Common Denominator

There is, however, one common denominator, indicated by the little telephone icon. All companies reported their earnings just before the big gap down (either after the close or before the bell).

Do Gap Downs Foreshadow a Major Market Top?

Excessive amounts of selling pressure are a reflection of investor psychology.

Gap ups on the way up are a vote of confidence; gap downs show that investors’ confidence is eroding.

Erosion of confidence is one of the tell tale signs of an aging bull market. This doesn’t mean the bull market is over, but it shows that investors are becoming more selective.

The number of outperforming stocks shrinks as more and more individual stocks fall into their very own bear market. In fact, currently 31% of all NYSE stocks are trading 20% or more below their highs.

In other words, a third of all stocks are already in their own individual bear market.

A historic analysis of major market tops puts this deterioration into perspective and shows how close (or far off) we are from a major market top. It also shows which sector is the best to invest in right now.

Here is a detailed look at the 3 stages of a dying bull market.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Biggest Dow Jones Component Hits Speed bump

Every index has at least one VIP component. Apple is the VIP for the Nasdaq-100 and S&P 500. IBM and VISA are the VIPs for the Dow Jones Industrial Average. When a VIP is ailing, the index has a hard time firing on all cylinders. That’s the case for the Dow Jones right now.

Prior to the latest Dow Jones reshuffle IBM used to rule the roost.

Effective September 20, 2013, Nike, Goldman Sachs and Visa replaced Hewlett-Packard, Bank of America, and Alcoa.

Prior to the reshuffle IBM accounted for a whopping 10% of the Dow Jones Industrial Average (DJA: ^DJI). The Dow’s runner up VIP was Chevron with 6%.

Today IBM is only the second biggest Dow Jones component, making up ‘only’ 7.45% after VISA with a weighting of 7.93%.

Nevertheless, when one of the Dow components hits a speed bump, the Dow tends to suffer.

IBM is hitting such a speed bump right now.

As the IBM chart below shows, trade is pausing at a descending trend line and at a wide resistance zone made up of prior highs and lows.

How come the Dow Jones Industrial Average and Dow Jones Diamond ETF (NYSEArca: DIA) have pushed to new all-time highs even though IBM is trading 14% below its high?

It has to do with the strong performance of the financial sector. The financial sector is near new recovery highs and since the September reshuffle the financial sector makes up 16% compared to 11% before the component change.

Regardless of its composition, Dow Jones and Dow Jones ETF are also gnawing at an important resistance level.

The media makes us believe this all-important milestone is round number resistance at 16,000, but it isn’t.

Here’s the Dow Jones resistance level that must be watched:

Forget Dow 16,000 – Here’s the Real ‘Bubble Popper’

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report uses technical analysis, dozens of investor sentiment gauges, seasonal patterns and a healthy portion of common sense to spot low-risk, high probability trades (see track record below).

Follow Simon on Twitter @ iSPYETF or sign up for the iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

IBM – The Dow’s Alpha Stock is on the Verge of Breaking Down

IBM is the Dow’s biggest powerhouse and one of the most important companies for the U.S. stock market. The blue chip has shot up 300% in four years and is sitting just above important support. A breakdown here could have far reaching ripple effects.

IBM is an “alpha stock.” Like an alpha dog or alpha male, alpha stocks lead the pack.

What makes IBM an alpha stock? There is IBM’s storied history and $217 billion market cap, but what ultimately makes it a leader is the 11.28% weighting it carries in the Dow Jones Industrials Average and Dow Jones Industrials Average ETF, also called Dow Diamonds (DIA). IBM is also the fifth largest component of the S&P 500 SPDR (SPY).

Unlike other indexes, the DJIA is price weighted, the pricier the stock, the heavier it’s weighted in the average. IBM trades at 190 and influences the Dow’s movements more than any other stock.

Only two other companies are as influential (or more influential) as IBM: Apple and Exxon Mobil. We know that Apple’s 30% haircut put the entire U.S. stock market in a funk, so what’s IBM’s message?

Long-Term Technical Outlook

IBM lost about 10% over the past three months. This sounds like a lot, but when put in context with a long-term chart, it’s no more than a drop in the bucket. Since November 2008, IBM soared from 69.50 to 211.79, a 303% increase.

The first quantitative easing (QE) intervention also commenced in November 2008, but surely any correlation between the two is purely coincidental. Regardless of the cause, the down side potential for a blue chip stock that’s tripled in four years is much greater than 10%.

Short-Term Technical Outlook

The short-term chart shows IBM toying with long-term (green trend line) and short-term support (black channel). A break below 190 would trigger a sell signal (stop-loss just above 192) with a possible short-term target of 177 – 182.

To me, the structure of the decline since the October high suggests that prices ultimately want to head lower. Trade above 190 allows for limited near-term strength, but only a move above 198 (channel rising) would unlock more bullish potential. A drop below 190, on the other hand, could be the straw that breaks the camel’s back.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.

Apple Becomes Second Most Valuable Brand in the World, But Traders Get Scared

Apple is the most valuable company in the world. Now it is also the second most valuable brand in the world. Nevertheless, traders are concerned about Apple stocks which is reflected in the price of options.

According to brand consultancy firm Interbrand, Apple’s brand value increased 129% to $76.57 billion last year. This makes Apple the new #2 on Interbrand’s list of the top 100 brands.

Apple is followed by IBM ($75.53 b), Google ($69.72 b) and Microsoft ($57.85 b). #1 and the only non-tech company in the top 5 is Coca Cola with a brand value of $77.83 billion. The chart below shows the top 28 brands.

Apple’s growth outpaced even Google’s steep growth trajectory. Apple and Google surpassed Microsoft for the first time ever.

Interbrand’s key valuation aspects are the financial performance of the branded products or services, the role of the band in the purchase decision process and the strength of the brand.

Traders Become Skeptic

As of recent Apple has hit some speed bumps. It didn’t sell as many iPhones as expected and basically had to admit that Apple maps is inferior to Google maps.

More importantly, Apple’s stock (AAPL) became too overbought. Even before the iPhone went live and Apple maps draw criticism, the September 12 Profit Radar Report recommended to: “Short Apple (or buy puts or sell calls) above 700.”

With Apple trading about $35 below its all-time high, option traders have become unusual bearish. Bloomberg reports that bearish Apple options are the most expensive relative to bullish options since late 2011. This seems like an overreaction considering a moderate drop of only 5%.

Newsletter writers that cover major stock market indexes like the S&P 500 saw a similar sentiment movement. The percentage of bullish advisors polled by Investors Intelligence dropped from 54.20% on September 18 to 46.80% on October 2. The SPDR S&P 500 ETF (SPY) lost less than 2% during that time.

The S&P 500 continues to trade within a parallel trend channel and support for Apple is at 660, 650 and around 635. It seems that the immediate down side for stocks and Apple is limited.

Bi-Polar Technology Sector is Torn By Performance of Groupon, Facebook and Apple

About 18 months ago stocks were fueled by the Facebook, Groupon, and the smart phone app frenzy (i.e. Angry Birds). None of the above companies are actually included in the Technology Select Sector SPDR ETF, but the prospect of a new tech boom was enough to lift the entire sector.

And while the technology sector has continued to move higher, it has left Facebook, Groupon and others in the dust. Why? Allow me to republish some research notes previously reserved for subscribers.

Facebook Warning: Published May 11, 2012

“Facebook (FB) is expected to go public on Friday, May 19. The media will gladly spread the frenzy, but I’d like to point out a few nuggets to put Facebook’s insane valuation into perspective:

– Assuming a valuation of $100B, FB will trade at 33x advertising revenues. Google trades at 5.5x.

– At $100B, FB will be worth more than: Caterpillar, American Express, Home Depot, Walt Disney and even McDonalds. In fact, 15 components of the mighty Dow Jones Industrial Average have a market cap of less than $100B.

– The market value of Google at its IPO was “only” $27B

– Apple currently trades around 3.8x sales. The same metric applied to FB would put its valuation at $15B.

To some degree the social media bubble is reminiscent to the 1999 tech boom. Most social media companies are valued based on promises more than established accounting standards. Recent IPO’s of Groupon, Pandora, Yelp, and Zynga created a lot of hope during the first couple of days of the IPO and fizzled thereafter.

Will FB await the same fate? You can’t predict the extent of any frenzy, but the amount of fizzled frenzies dwarfs that of sustainable ones. My bold prediction is that FB will loose at least 30% of its IPO price by sometime in 2013.”

Well, it turns out I was wrong. Since its May 2012 IPO ,Facebook shares have fallen as much as 61% (from a high of $45 to a low of $17.55). Facebook’s market cap is now $44 billion.

Groupon Warning: Published December 17, 2010

It was my belief that the Groupon movement (group coupons) is dangerous for the economy and unsustainable. This was contrary the most of Wall Street‘s outlook. I picked on James Altucher, a popular tech cheerleader, to contrast our difference of opinions.

“Altucher doesn’t believe there’s a new social media/coupon bubble. This time is different because Groupon’s rejection of Google’s $6 billion bid is ‘the dawn of a new and improved internet bubble. Unlike the bubble of the late 90s, though, this one is based on fundamentals, not irrational exuberance’.

It’s ironic that Groupon’s success and refusal of Google’s advance is seen as the dawn of a new era. Groupon has a killer business model, which is a goldmine for Groupon, but poison for healthy economic growth.

This new way of buying nurtures frugality and robs restaurants and other retail stores of their pricing power. Groupon is feasting on a deflationary trend while wizards like Altucher see the company as a gateway to the new and improved economy.

According to Altucher this is ‘not a bubble, it’s a real significant boom.’ It’s a boom all right, we’ll just have to see whether it’s an economic or deflationary boom. My money is on the later.”

Since its November 2011 IPO Groupon shares have fallen from a high of $31.14 to a low of $4. Groupon’s current market cap is $3 billion, half of what Google was willing to pay for the company.

Technology Sector at 11+ Year High. Why?

The Facebook, Groupon, smart phone app boom is deflated, so why has the tech sector moved on to an 11+ year high?

A look at the top holdings of the Technology Select Sector SPDR ETF (XLK) may hold the answer.

Apple, IBM, and Google account for 34% of XLK and trade at or near all-time highs.

Microsoft, AT&T, and Verizon account for 19% of XLK and, like the Nasdaq-100, trade at or near a 10-year high.

Former highflyers like Cisco, EMC, Hewlett Packard, Corning, Yahoo, Broadcom, Dell, Applied Materials, Sandisk, Juniper Networks and others continue to trade near the lower end of their 15-year range.

It appears that a few strong companies mask the performance of many weak companies. That’s not the definition of a strong market or sector.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.