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1. Perfect Bullish Percent-R Retest Yesterday
4/2/2009 1:08 PM EDT
close gave us a very nice confirmed bullish Percent-R retest on the daily chart. It also had a successful test of key middle levels on the hourly chart. If you are using charting software, we utilize different inputs, levels and techniques on our Percent R analysis than are the defaults on most programs -- BigTrends founder Price Headley and others in our firm have developed methods for smoothing out and utilizing the Williams Percent R that are not really being used by anyone else that I'm aware of. And the nice thing about this indicator is that it can often be a "leading indicator" as opposed to a lagging one, which is basically the "holy grail" of most technical analysis.
2. Apple Hitting Six-Month Highs
4/2/2009 11:45 AM EDT
You have to go back to September (which seems quite long ago) for the last time
was above $112. The stock is getting lifted by an analyst upgrade today.
You can also see some sector strength in the list of stocks hitting new 52-week highs today, including:
- China: Shanda Interactive( SNDA) and AsiaInfo (ASIA) .
- Springtime stocks: Scott's Miracle-Gro (SMG) - Get Report and Central Garden (CENT) - Get Report (CENT).
- Auto parts retailers/repairs: AutoZone (AZO) - Get Report (before pulling back), Monro Muffler (MNRO) - Get Report and O'Reilly Auto (ORLY) - Get Report.
That last group is thought to be vulnerable in a cash-for-clunkers program, but there will still be plenty of aging cars on the road.
3. My Two Cents on Gold
4/2/2009 9:51 AM EDT
The reason that gold has value is that it is an inflation fighter. So, too, are blue-chip stocks on the
, on which Bill Gross (of Pimco) calculated the 20th century investment return as inflation, plus dividends, plus 0.6% a year real. Ignoring the fractional real term, the prices of the Dow and gold should therefore track closely over a period of say, a century.
They don't necessarily track over "shorter" time periods (decades) because of extreme price movements. For instance, the ratio of the Dow to the per-ounce price of gold was about 1 to 1 (800-something to 800-something) in 1980, during the Iranian hostage crisis, meaning gold was too expensive and stocks too cheap. In 2000, the ratio was 40 to 1 (almost 12,000 to almost 300), which is why I sold "regular" stocks and bought gold stocks then, a move that helped me make money in
of the three down years, 2000, 2001 and 2002.
Regression-type arguments suggest that a reasonable ratio of the Dow to gold is about 5 to 1. Based on a hypothetical "new normal" of 7500 for the Dow, dividing by 5 gives $1,500 an ounce as a plausible price for gold. At a 3300 Dow, gold would go down to $660. If we returned to 14,000 on the Dow, gold should be $2,8000. One forecaster sees gold at $200 an ounce; that would put the Dow at "Jim Cramer's" 1000.
There is one clear advantage of stocks over gold. Most stocks pay dividends, and gold doesn't. Put another way, Dow stocks as a group are glorified TIPS (Treasury inflation protection securities). But with the interest rate on TIPS approximating zero, gold is at least competitive with TIPS these days.
4. Morning Trade
4/2/2009 9:27 AM EDT
Many more weeks like this (gap down, gap up, gap down, gap up), and I am going trade the overnight session and sleep during the day! Once the emini broke through yesterday's 791.50 level, that persistent bid came in and propped the market up and forced traders to buy each (shallow) dip. I have no clue whether the FASB decision warrants a 2% gap higher ... but I suspect that bid will remain under this market as long as we hold the 817 area.
Initial resistance this morning is 826.75 ... if the bulls can push the emini through this area they can target moderate resistance at 829 and strong resistance at 833. Be aware that almost every trader I know is watching the 833 area, so buy stops (to cover any shorts) may be placed just above this level. Spiky action is very possible at 833, but a sustained trade above this area opens the door for the bulls to really run this market. Moderate resistance comes in at 845, and strong resistance is at 855.
Until this market has a sustained trade above 833, I consider it to be stuck ... though the bulls clearly have the advantage. A break below initial support at 820 sends us to strong support at 817. If the bulls are going to make a run for 833, I expect them to defend the 817 area. The bears do not take control under 817, but that persistent bid should diminish a bit. Moderate support comes in at 812.50 and strong support at 808. A break of 808, and I expect the bears to become a bit more aggressive.
5. IPO Watch
4/2/2009 8:16 AM EDT
The upbeat look in the index futures and overseas markets bode well for
, which is set to IPO today.
The company is an online gaming operator and is majority owned by the Chinese Internet portal
Changyou is the first Chinese company to have an IPO in the U.S. since last summer, and it marks just the second IPO of any origin in the market this year.
The company priced 7.5 million ADSes overnight at $16, which was at the high end of the range. Half of the shares were offered by Sohu.
According to the research I've seen, the deal was highly subscribed and moved along faster than previously expected.
Not only will China investors be watching the early trading of Changyou closely, but a successful IPO could bode well for the continuing improvement in overall market sentiment.
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This article was written by a staff member of RealMoney.com.