Seeking Alpha

Adam Alvarez's  Instablog

Adam Alvarez
Send Message
As a conservative, both politically and economically, I strive to look at the long term risks of all trades. I'm also in favor of and recognize the importance of implementing stop loss orders. When it comes to trading, the fear shouldn't be of failure, but the unwillingness to accept failure.
View Adam Alvarez's Instablogs on:
  • What To Learn From Apple's Fall

    Since Apple (NASDAQ:AAPL) shares began their puzzling descent last September, the overwhelming and unanswered question of why the fall occurred has continually baffled investors. Sure, there have been a multitude of reasons thrown out including the argued poor performance by some of CEO Tim Cook, stronger competition from cheaper companies like Samsung and the inability of the company to bring about the next big thing in recent months.

    I could even see the looming economic uncertainty, as I've mentioned before, as playing a large role.

    Still, the reasons for a stock's movement is often less complicated than we tend to make it seem. In response, all we can do is learn from such occurrences and looking at a stock's chart goes a long way in that process.

    From Apple's low of $82.57 from March of 2009 to the high of just over $400 shares eclipsed in late 2011, the climb for the stock was persistent, yet steady. Shares climbed, but they also had months they traded flat or even pulled back. The company grew with earnings and new products, but expectations remained realistic.

    In just under three years, shares climbed approximately $300 for an average gain of $100 per year. However, that persistent and defensible trading pattern gave way to ferocious buying. Within the first four months of 2012, shares climbed almost $250 or well over double what that had gained on average in the years preceding. By September, even the launch of the iPhone 5 which drew a multitude of customers no longer made buying shares sensible.

    In the end, it may just be some freak coincidence that shares of the tech giant responded by retreating back practically to the same price they enjoyed before the accelerated buying began in early 2012. Or we can use such a chart as a guide towards future investment strategies. After all, Apple isn't the only company with such a history.

    Shares of First Solar (NASDAQ:FSLR) hit the market in late 2006 with plenty of reasons to buy. They methodically climbed from their opening day close of just under $30 to $68 within seven months. Then, in June of 2007 shares jumped 24% or over $20 to around $89. They would climb feverishly for another 11 months before crashing hard to $85.28 in November of 2008 or to almost the same spot in which the exaggerated buying began.

    Perhaps no other stock has shown us that the heightened volatility which will always accompany the outperforming stocks and sectors can turn into panic selling more than the trade of Netflix (NASDAQ:NFLX) in 2011. Whereas Apple shareholders may be frustrated at the lack of a new product soon hitting stores, Netflix shareholders were perturbed at management's baffling attempts to separate its DVD and streaming services. So the stock, which had been slowly making gains at $50 per share before surging to $304 in 2011, inevitably tanked back to just over $50 in September of 2012.

    From its IPO high of $35.50 in May of 2009 until late April 2010, shares of OpenTable (NASDAQ:OPEN) had traded in a pretty tight range. Then, in almost exactly one year they soared to a high of $118.66 before falling back below $40 six months later. Most noteworthy is that the fall in shares occurred even as earnings were growing consistently and as the company was beating estimates.

    In the end, what these charts show benefits investors in two ways. First of all, buying shares in the midst of an upward swing isn't as risky as one might think. That is at least if you are willing to implement tight stop loss orders. In the midst of their runs, these stocks had little in the way of actual corrections as buying remained continuous and relatively immune to outside market developments. With most stocks in such a position gaining at least around $100, there is also usually ample time for investors to make a profit.

    Secondly, most stocks in such a state fall back to the same level they traded at before the intense buying began leaving investors typically able to guess a bottom. Even First Solar, although eventually falling below support, initially gained back $120 after retreating below the $100 per share mark.

    Now by no means should investors ever feel encouraged to buy into a stock which is plunging. However, charts show that even if a stock falls by a seemingly large sum, the support for shares may still be surprisingly strong.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: AAPL, FSLR, NFLX, OPEN
    May 02 2:35 PM | Link | Comment!
  • Negatives Of Tax Increases

    When Congress finally passed legislation sparing most from the calamity of higher taxes, the major indices soared. After all, limiting the bulk of the increases to those making over $400,000 made both political and economic sense. The move would seemingly do an adequate job of raising revenue while also perhaps finally tapping into a national deficit that now stands over $16.4 trillion.

    Factor in a poll showing 67 percent of the top one percent of American earners support higher taxes and the decision to raise rates seems even more appropriate.

    However, to think raising revenues is even a first step in a long process to reduce a crippling national deficit is inaccurate. Instead, raising revenues will only further damage an economy that currently stands on spending alone.

    The signs of excess spending are large in number and, in many cases, too extensive to quickly correct. Take the still shaky banking sector as a prime example. By even July of 2012, approximately half of the bailed out banks had failed to repay the government. Even more disturbing was that almost two-thirds missed dividend or interest payments and a staggering 137 banks had used a government-loan program to repay their debt. Thus, to a large extent, the government was still bailing out these institutions even while being repaid.

    What's worse is that all signs now point to the spending even reaching new heights. Along with the last minute deal to avoid the crippling spending cuts and tax increases came a one year extension on unemployment insurance. It was a move that may delight those struggling to land a job, but one that should anger most citizens paying higher taxes considering the $30 billion the measure costs will only be added to the deficit.

    When House Speaker John Boehner announced during recent budget negotiations that spending was a problem that could not be fixed with tax hikes, his message probably went ignored by many. After all, it seems easier to merely increase revenue via those that have the financial capacity to weather the increased tax burden. However, with a deficit that rises on average $3.86 billion per day, the increased tax revenue can only go so far. Especially when such revenue only fuels more spending.

    Stocks may rise for the time being or until the next budget battle gets underway in a matter of weeks. However, when the budget ceiling takes center stage, investors need to be prepared for the worst case scenario. After all, the economy can only survive in the long term with honest spending cuts and until Washington feels the same way, expect widespread volatility and ominous earnings outlooks.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Jan 07 9:09 AM | Link | Comment!
  • Dangers Of Unemployment Insurance?

    In an environment in which employment is still hard to come by, it's safe to assume many aren't working their dream jobs. They've had to settle for what's available and what pays. After all, the old adage of a job beats no job at all still rings loud and clear for most. Even then, there are many that come up short.

    However, when the government passed a one year extension of unemployment insurance during the latest budget battle, they might have done more than merely help those that remain without a job. They may have encouraged some to quit looking.

    Now there are many who have been laid off for reasons beyond their control. Many who have done everything they could to locate a job only to be left a victim of the economic times. However, to extend benefits also allows the system to become abused and the overall goal circumvented.

    With many now being able to claim some form of unemployment benefits for well over a year, the pressure to search for a job has eased. Receivers of these benefits can now feel more inclined to take a break from the rigors of countless job searches with the belief that time is finally on their side.

    Still, such a break can only further delay and hamper the resume of those in desperate search of employment. For example, using the full resource of benefits would be like taking six years to get a bachelor's degree in college. In the end, you'll have the degree, but you won't have quite the appeal in the eyes of future employers.

    Now states have, in certain cases, done some unique things to try to get people back to work. Florida even renamed their Unemployment Compensation Program in July of 2012 to the Reemployment Assistance Program in an intriguing attempt to keep recipients upbeat and encourage them to keep looking for work.

    Still, will it succeed?

    Such a question won't be answered for months or even years. However, it is safe to assume the added benefits will infuriate some who have either remained away from the unemployment line or used only the basic benefits thanks to diligent job searching or the willingness to work multiple jobs.

    This leaves the government in a precarious situation. After all, in recent years we have typically had a choice between either praising those for working hard or sympathizing with those who failed. With the government choosing the latter approach, the end result may turn out more dangerous than you would think.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Jan 07 8:41 AM | Link | Comment!
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Most Commented
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.