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Posted 6/14/2001
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The Speculator
20 stock speculations in time for summer
Investing insight strikes when you least expect it, in the form of sunshine, waitresses and Apple Computer. Read ours and then share yours.
By Victor Niederhoffer and Laurel Kenner
New York sports columnist and war correspondent Jimmy Cannon, a legendary Damon Runyon protégé who died in 1973, sometimes published collections of short takes on life, women, taxis and sports that begin with the phrase, "Nobody Asked Me, But...".
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Inspired by the master, today we offer our own twist on the genre. As our readers know, our speculative style is based on counting. Thus, we'll provide backup analysis for our observations, where we can.
Just speculating, but...
A second harvest on Apple. We've made some money in the past by buying Apple Computer (AAPL, news, msgs) before the big Macworld shows in January, as Chief Executive Steve Jobs is legendary for taking advantage of the spotlight to unveil hot new stuff and the average performance in January for Apple has been quite nice. We recommended buying Apple on Dec. 29 last year and selling on Feb. 1, which would have produced a gain of 42%. Macworld is coming up again on July 17-20; Apple's average performance in July for the last seven years has been a 13% gain, with three of those years registering gains of more than 20%. We're buyers. . . .
The triple-witching factor. When the third Friday of the month falls early, as it does this week, the market has extra time to set up big waves of euphoria and pessimism before the next options expiration, thereby causing the maximum amount of margin redemptions and liquidations for sellers of both puts and calls. A couple of weeks will pass before mutual funds start buying at the beginning of the next month, so the path of least resistance for stocks just after early expiration tends to be down. (The numbers: Of 36 occasions when options expired on the 15th, 16th or 17th, the average change in the S&P 500 Index ($INX) the next week was -0.5%, compared with a normal 0.25% upward drift. That -0.5% contains within it some terrible declines.). . . .
Stocks look better with a tan. The market and the weather have both shown record volatility in the past decade ... and the market is much more likely to go up when it's sunny in New York than when it's raining. . . .
The VIX has spoken.When the Chicago Board Options Exchange's Volatility Index ($VIX.X) falls to 21, as it did June 5, complacency is greatest and so are the chances of a big decline. . . .
”Stocks decline on earnings fears.” Possibly the most ubiquitous headline in financial journalism. Yet the truth is that the market tends to rise in years when earnings decline. Since 1985, there have been four of those years -- and the average return for the S&P 500 in those years was 20%. For the exact relationship -- a k a correlation coefficient -- and a backup spreadsheet showing forward correlations between earnings change and S&P return, click here and click on "msnt614a.xls" in the gray bar at the bottom of the post. . . .
And the envy of all your friends. Knowing which mutual funds performed best over the last one, three, five or 10 years, plus $1.50, will get you a ride on a Manhattan subway. …
Indians used to set fires to provide a smoke screen for ambushes. Market warriors engage in similar behavior today with big declines....
Down with retirement. If 65-plus-somethings were given the same opportunity to keep working afforded to Federal Reserve chairmen and Supreme Court justices, not only would they be healthier and happier, but the world would be a better place and the Social Security problem would be solved. The stock market would benefit, too. . . .
We fearlessly predict. When former growth-stock bulls start recommending dividend-paying stocks, the Nasdaq ($COMPX) will rally 10% in five days. . . .
Analysis Lite. When we read that stocks rose on light volume, as if to denigrate the significance of the rise, we want to laugh. There is no evidence that stocks going up on light volume is any more or less predictive than going up on heavy volume. In fact, it's close to random in both cases, despite what they say at meetings of the technical analyst societies. . . .
Times have changed. The days when people equated S&P 500 Index funds with zero-risk money market funds are over. . . .
82% returns for cheap stocks. The best thing that anyone could have done this year was to buy low-priced stocks. According to the Value Line researcher Tim Downing, the average performance from year-end through June 8 was: 82% for the below-$5 stocks in the Value Line universe, 55% for below-$10s and 31% for below-$20s. For a table, click here and click on "msnt614b.xls" in the gray bar at the bottom of the post.. . . .
Further proof. The lowest-priced decile of stocks in the Value Line universe (approximately $10 and less) rose 35% in January, fell 15% through the beginning of April and went straight up in a 30% rally through June. The average gain for the first six months was 50%. . . .
Our scorched-stocks theory. If the intensity of a wildfire exceeds a certain level, the soil will be too badly damaged to support new growth. Judging by past crashes, the same is true of certain stocks and market sectors. . . .
Here in the real world. People buying houses are probably shaking their heads at the repeated pronouncements by government record-keepers and central bankers that inflation is well under control. . . .
Hmmmm. What would have happened if Andrew Carnegie had followed the example of Henry Ford and raised the wages of his steelworkers, rather than spending all that money building libraries?...
The U.S. employment figures have been surprisingly robust relative to those of other countries, considering all the recent downsizings. If by chance the year-over-year comparisons are weak in 2002, it would not be favorable to the prospects for re-establishing a Republican triumvirate of presidency, House and Senate. …
The Fed is on deck. This year marks the 50th anniversary of the home run heard around the world, when Bobby Thomson knocked one into the left-field bleachers to give the Giants a 5-4 victory over the Dodgers in the playoffs. Vic, a speculator at 8, had money on the Dodgers and still cries when he hears a recording of Russ Hodges saying, "There's a long drive, in center field I believe! The Giants win the pennant! The Giants win the pennant! The Giants win the pennant! The Giants win the pennant! BobbyThomson hits into the lower deck of the left field stands. The Giants win the pennant, and they're going crazy, they're going crazy! OOOOHHHH!!!" ... We predict that the Fed will take action in September to hit a home run for the market this year and there will be a fantastic rise. . . .
• Slicing and dicing to find Nasdaq’s best stocks, 6/8/01
• A long, hard summer ahead for investors, 5/31/01
An investing tool you can do without, 5/24/01
more...
Share your theories. In our last few columns, we've offered spreadsheets showing the results of our studies on the Nasdaq 100 ($NDX.X), TRIN and ($VIX.X). The number of requests has grown exponentially, from a few dozen the first time to 400 for the last one. We've happily fulfilled all the requests, and we're grateful for all the repeat business and new customers. This time, we've posted our spreadsheets as separate threads on the SuperModels Community. We're looking forward to reading comments there.
And we're offering a cane to readers who send us the best "Just Speculating, But..." entries for a future column. The canes can be used to buy stocks in times of panic. To read about cane investing, click here.
At the time of publication, neither Vic Niederhoffer nor Laurel Kenner owned any stocks mentioned in this column ... but they're eyeing Apple.
MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.