September 9th, 2008

Market Momentum Trumps Individual Stock Stories (NGS, ARLP)

I don’t know about you but this market is downright depressing. It sometimes feels like a death by a thousand cuts. Whiplash is what it’s giving me.

Even though I preach “abstinence” from holding stocks for the time being, I also get dip my toe in whenever a chart looks like it’s going to buck the trend …. only to pay the price a few weeks later. I keep saying to myself that the market’s forming that right shoulder. The fundamentals just are in place to make a compelling case for a turn in market momentum (perhaps the best case for continuing market weakness was presented this past weekend by Paul Lim in his NYTimes article entitled “Why the Bear Is Alive and Well“.. a must read).

And without upward market momentum, a stock with sustainable upward momentum is exceedingly rare. A case in point is NGS (Natural Gas Svcs Corp):

I bought NGS sometime in the spring after it seemed that the breakout into new hight territory would hold but then, in mid-June it quickly reversed direction. It’s declined over 50% in just three quick months.

Or what about ARLP (Alliance Resource Partners). It too shot through the upper boundary of a long-term downward sloping channel and proceeded to make new all-time highs.

But then, at about a week after NGS, ARLP also switched direction, without a topping pattern, and proceeded to erase all of it’s move and entered back into the channel. Where will the bottom be? I couldn’t tell you.

Individual stocks are going to continue to be too risky for me until some positive momentum returns to the market. Between the October 9, 2007 peak and yesterday, only 18% of stocks didn’t showed a gain; only 10% showed a gain of greater than 10% (before dividends). The past year has been a terrible one for those trying to squeeze out a living trading (unless it’s been playing the short side of stocks and this market).

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