'RealMoney' Radio Recap: The End of the Affair
Aaron Task, co-executive editor of
TheStreet.com
, kicked off Monday's
"RealMoney" radio show with a closer look at the decline of
(GOOG)
. Task will be filling in for host Jim Cramer this week.
He said the stock was off $17, or about 4%, after a critical story in
Barron's
that "dared to argue that the Internet stock giant's shares could fall as much as 50% from current levels."
The article rehashed all the bearish arguments that have followed the company since it went public, including its relatively high P/E ratio, competition from
Microsoft
(MSFT)
, the threat of click fraud, advertising prices dropping as search competition heats up and even flack for its treatment of the Justice Department and the Chinese government," Task said.
But Task believes that the real story is the fact that the stock was down more than 20% since mid-January prior to today, along with
Apple
TheStreet Recommends
(AAPL)
, and that
SanDisk
(SNDK)
,
Southwestern Energy
(SWN)
,
Amgen
(AMGN)
and
Genentech
(DNA)
are all down 10% to 15%.
Task calls this the "the end of the affair," as momentum traders pull out of stocks that over the last year have outperformed the market.
While momentum traders chase stocks they think are rising stars, bidding the prices higher and higher, they will bail as soon as those stocks show weakness, he said.
Task adds that momentum traders, not institutional investors, are unloading and that this is a normal correction in the path of a stock that has doubled and tripled in a short period of time.
"If we learned anything from the bull market of the 1990s, it's that the higher a stock goes in an uninterrupted climb, the more vulnerable it will be to a fall," he said.
If you believe in the long-term story about Google, the Street is offering you a gift, he said. Even though there's no guarantee that the stock has bottomed out, it is a better deal than it was yesterday and a buying opportunity for those who like the name and the story.
But don't do all your buying in one go, Task warned.
This is also happening in commodities, which have been the place to be for the last three years, he said. This is something to be conscious of because we may be seeing a shift in the market's character, Task added.
Task also discussed the fact that momentum is going into international markets, which have been outperforming the
Dow
for the past year.
There are now expectations that the
Federal Reserve
will raise interest rates more than people had assumed, Task said, perhaps going beyond 5%.
This could be good for the dollar, but it won't be good for a lot of commodity plays, he said, adding that new Fed Chairman Ben Bernanke's testimony before Congress will certainly have an effect on the greenback.
Chesapeake Energy
(CHK)
announced that Tom Ward, its president and chief operating officer, will resign, and a caller wanted to know how this would affect the company.
It's a yellow flag, Task said, adding that he might think about putting in a stop loss.
But he also believes that energy names that are down for whatever reason will likely bounce back and that long-term investors might think about picking them up.
Another caller asked how to deal with
Nabors
(NBR)
, a stock that is still down. Task said that it depends on what kind of trader you are. If you're looking at a longer-term play, said Task, this could be an opportunity to scale into Nabors, provided that you like the story and believe that the oil rally isn't through.
Task said that
Cypress Semiconductor
(CY)
is not profitable, so he prefers
Xilinx
(XLNX)
.
But Cypress has been featured in
TheStreet.com's
newsletter, which says that the stock price does not reflect the value of its investment in
SunPower
(SPWR)
.
Task said that he would wait for the price to come down before picking up shares.
As for the tech sector, he's bullish because he thinks that big-cap names are the place to be after being out of favor for so long.
He believes that
Broadcom
undefined
and
Tellabs
(TLAB)
could fall prey to profit-taking as momentum traders bail.
But names such as
Intel
(INTC)
and
Cisco
(CSCO)
could improve because the investment winds are shifting back to big-cap names.
The Disciplined Trader
Task welcomed Lenny Dykstra, the "Disciplined Trader" and celebrity-investor contributor for
TheStreet.com
, to talk about his strategy of buying deep in-the-money calls.
"You have to find something that you are comfortable with and good at to participate in the stock market," Dykstra said.
Dykstra buys calls, rather than a company's stock, because purchasing control of the shares gives him exposure to quality stocks for a lot less money.
He also believes that the strategy is more flexible because it allows him to unload shares the minute they move higher.
Dykstra also uses the strategy to take advantage of weakness in high-quality stocks such as Nabors.
He bought June 60 deep in-the-money calls for $14.50, much less than the $72 he would need to buy the stock. And Dykstra said he said he would sell the minute the stock moved much higher.
A listener said he picked up
Bank of America
(BAC)
calls, which are down about a buck from where Dykstra suggested buying them.
He wanted to know if Dykstra picked up more as stocks fell, and Dykstra said definitely, yes.
Now is a good time to buy more, he said, adding that he often picks up more calls when a good stock falls a point or two.
"Remember," he said, "we're going all the way out to May or June on these calls. All it takes is a couple of up days and you're out."
Aaron L. Task is the co-executive editor of TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships.
to send him an email.
