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Are GNW and BAC dead stocks walking...?

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November 21, 2010 – Comments (24) | RELATED TICKERS: GNW , BAC , AKAM

If you are aware of what happened to GNW and BAC stocks year-to-date, most likely you are thinking these stocks are dying a slow death. I mean, which stocks go from a 52W high of $19 down to a 52W low of $11 in a matter of months (6 months to be more precise)? Certainly not future winners, right?

Take a look at their 2010 charts (talk about stocks breaking down...)

 

 

Nowhere but down for these two stocks, wouldn't you think?

Well, I have a different opinion.

I think GNW and BAC are just going through the same cool-down phase AKAM went through in 2004. Take a look at AKAM's 2004 chart first, then I'll explain what I mean. 

 

Do you see it? Don't their charts look almost identical?

I know, I know. I know what you are thinking. How stupid must one be to dig up a chart from 6 years ago and say Look at it, like that really proves anything. 

Well, I didn't just dig up AKAM's 2004 chart because it looks just like GNW's and BAC's 20010 charts.  

There is much more these three stocks have in common.

During the bull market of 2003, AKAM was a huge winner - it went from $1 in March of 2003 to $13 in December of 2003 (1,200% return).

Let's now take a look at what happened to GNW and BAC during the bull market of 2009:

As you can see, GNW went from $1 up to $12 (1,100% return) while BAC went from $3 up to $15 (400% return). Both huge winners during the first year of a new bull market just like AKAM was in 2003.

But that's not all. There is one more thing that's common for all three of these stocks: The VOLUME story.

Take a look at AKAM's January 2001 - December 2004 chart and compare the difference in the volume during the period AKAM started exploding (with the beginning of a new bull market) vs. the 2004 cool-down period. 

Do you see it? Do you see how AKAM's volume at the beginning of a bull market jumped to the highest-ever volume and how it stayed much lower during the cool-down phase in 2004?

Let's now take a look at GNW's and BAC's 10-year charts:

Same thing, right? Highest volume ever while they were exploding during the start of the new bull market, and very low volume during a cool-down period. In other words, there were many more people (we are talking big money here - not just any people) willing to jump into these stocks than there are now who want to get out of these two stocks. That's important, don't you think?

And so, we got to the end of this post filled with charts. But there is still one more chart you need to see. A chart without which none of this would make any sense.

It's a chart that will show us what happened to AKAM after a cool-down year.

Here is AKAM's chart from January 2005 to December of 2006 (that's when the party ended for this stock):

Well, what do you think? Does any of this make any sense to you?

None, right? That's what I thought.

That's exactly the reason why I'm slowly building large positions in GNW and BAC. Six months from now, they will most likely be my two biggest positions.

And yes, of course I will remind you of this post when GNW and BAC hit $50 two years from now... :)

Good Luck Everybody, and don't forget to have fun when investing.

DLZ

24 Comments – Post Your Own

#1) On November 21, 2010 at 4:46 PM, Momentum21 (92.16) wrote:

For better or worse I have managed to avoid BAC and have opted for USB, STD and even AIB. I really like your call here though...

I would have called bottom back at 13 and change. If I didn't get involved in this crazy Biotech basket and get myself up to the gills in other wackiness I would be in the BAC pool already.

Might have to pull the trigger along with you...soon. Not sure about GNW but will check that out...good luck man.

Dragon wants some honey! 

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#2) On November 21, 2010 at 4:58 PM, dragonLZ (99.54) wrote:

Momentum21, I don't know if I would call this a "bottom-call" as I wouldn't be surprised to see these stocks go down another dollar or so. That's why I said I'm slowly buying. If they drop below $10, I'll stop buying as that means I was wrong. As long as they keep bouncing around $11, I'm a buyer.

Good Luck!

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#3) On November 21, 2010 at 5:05 PM, dragonLZ (99.54) wrote:

I now see I posted BAC's 2009 chart twice instead posting GNW's chart too.

So here it is:

 

Also, GNW's and BAC's chart showing the "volume story" are 5-yr charts, not 10-yr charts as I stated above.

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#4) On November 21, 2010 at 5:50 PM, MoneyWorksforMe (< 20) wrote:

I enjoyed your analysis for its conciseness and clarity, but an investment decision based solely on TA is just plain dangerous.

I suggest looking further into the earnings reports of these firms before jumping in head first. 

binve posted a video of Chris Whalen discussing how to profit from the next banking crisis. The presentation is 55 minutes long, but at several points he discusses some of the fundamental problems he is now seeing at the nation's largest banks. Take a look...here's the link:

http://caps.fool.com/Blogs/chris-whalen-presentation/473696 

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#5) On November 21, 2010 at 5:54 PM, MoneyWorksforMe (< 20) wrote:

http://caps.fool.com/Blogs/chris-whalen-presentation/473696

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#6) On November 21, 2010 at 8:41 PM, anchak (99.85) wrote:

I think both of these are good picks on the intrinsic fundamental business model.....

But both stocks are reflecting the weakness in the Financials index.....

Its worth watching! 

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#7) On November 22, 2010 at 1:26 AM, awallejr (83.80) wrote:

I'd rather play a specluation like FIG over BAC now.  At least with FIG odds are you will see better dividends over the years. 

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#8) On November 22, 2010 at 11:33 AM, Valyooo (99.43) wrote:

BAC, yeah, probably a good buy.  GNW, they are falling apart (the company).  Sometimes charts don't tell the whole story, theyre having a capital crisis

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#9) On November 22, 2010 at 12:51 PM, dragonLZ (99.54) wrote:

MoneyWorksforMe, Thanks. If I'm wrong, we'll know soon. If you are wrong, we'll know in 2 years... :)

anchak, I'm also concerned about the weakness in the financial sector, but I'm getting into these stocks with a long-term mindset. Once again, that's why I said "I'm slowly buying". I think we have at least 6-8 months of these stocks going nowhere.

awallejr, I never said I don't like FIG... :)

Valyooo, I'm convinced "falling apart" part will show in the volume - maybe it's too early for that, but eventually it will happen. Once again, that's why I'm buying slowly. If I'm wrong, I won't get hurt too much, but if GNW goes up to $15 and then  drops 30% (after I got a full position), I'll still be OK.

Btw., I'm planning on stopping buying over $15, and on any signs of further weakening (10% drop from today's price). 

 

 

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#10) On November 22, 2010 at 12:59 PM, dragonLZ (99.54) wrote:

Valyooo, did you ever wonder why DJSP keeps dropping like a stone even though "fundamentally" looked OK when it was at $5 (now at $.46)?

Check out in which direction was DJSP going when the volume started picking up (hint: it's not on the way up):

 

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#11) On November 22, 2010 at 1:25 PM, Valyooo (99.43) wrote:

With DJSP, I thought I closed it before it started dropping.  I realized after it fell 60% that I stupidly didn't, so I just left it there to keep tabs on it.

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#12) On November 22, 2010 at 1:26 PM, Valyooo (99.43) wrote:

I'm with you on the volume side, however sometimes if the volumes too big on the downside its just a flushout and a good buying opportunity

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#13) On November 22, 2010 at 1:35 PM, Mary953 (74.21) wrote:

Dragon, I always enjoy your analysis.  BTW, I have left a blog that applies to you, to awallejr, and most especially to Anchak among many others!

Good luck with these two.  I started building my own small positions in Netflix in March when I read that movie prices were going up to prices that I didn't want to pay.  I figured I wasn't the only one.  Now I just keep telling myself that it is a good company and an out of kilter portfolio never hurt anyone.  What do you think?  It was an appropriately sized position when I bought in.

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#14) On November 22, 2010 at 2:15 PM, dragonLZ (99.54) wrote:

Mary953, I replied on your blog - Thanks for the support and everything else.

NFLX - I don't know what to tell you. I don't follow it as I too am afraid of the price and the fact that it always just seem to go up. Of course, that doesn't mean this stock is not a winner.

I bought NFLX back in May of 2003, when it was at $25, but sold it shortly after that so I never got to enjoy the huge run-up.

I find it funny (p.s. found this out just last night) that I actually bought both NFLX and MVL on the same day (5/13/2003), months before Motley Fool did, and these two stocks are always mentioned as some of the best calls brothers Gardner ever made. 

Good Luck!

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#15) On November 24, 2010 at 8:43 AM, tranthrax (29.29) wrote:

Speaking of banks, what is your take on SNV?

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#16) On November 24, 2010 at 8:54 AM, Mary953 (74.21) wrote:

Dragon,

I did the same thing with Apple.  After the kids were out of the house, we took a vacation and there was one street with lots of 'designer brand' stores.  They were all deserted - except for Apple.  It was packed.  I got back and tried to buy some stock, but it was well over $100.  Later, I did buy in at over twice that price.  I took a good profit, but I cannot make myself buy back in now that it is over $300.  I should have believed my own eyes then.

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#17) On November 24, 2010 at 9:24 AM, dragonLZ (99.54) wrote:

tranthrax, I don't know what to tell you about SNV.

I liked it (and believed in it) when it was going up at the beginning of this year, and can't believe it dropped so much since then (it's 50% off it's April's high).

It fit's one of my technical criterias, but other than that, I don't know much about SNV.

At this point, I wouldn't be a buyer until I see some kind of an upward move (on a high volume).

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#18) On November 24, 2010 at 9:40 AM, dragonLZ (99.54) wrote:

Mary953, don't even get me started on AAPL.

I remember when it started going up back in 2003 when it went from $15 up to $20 (that's $10 now as AAPL had 2:1 split in 2005), and I couldn't understand what was so good about that stock. I thought it's a dying company that lost battle against Microsoft (I was a novice investor at that time and much more stupid than I'm today).

Then, a few years ago, I remember watching Mad Money when one of the callers (a student) called in and said he's thinking about putting money into AAPL.

AAPL was at $90 at that time, and I remember thinking to myself: What are these people thinking? It's not like this stock can go up forever.

Well, we know what happened... :)

Good Luck, Mary!

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#19) On November 24, 2010 at 9:51 AM, Mary953 (74.21) wrote:

Dragon,

Thanksgiving tomorrow, so today I am up PIE and other homemade goodies.  Pecan pies done, Chocolate pies done, Dutch caramel apple ready for the oven, Pumpkin will be last so that one is warm for tonite.  Plus a quick trip now over to where my daughter works to take her some hot cornbread (most goes to the dressing, but she likes a bit straight from the oven.)  Then back to get the sweet potatoes off the stove. 

Stocks will have to rise or fall on their own today.  Tomorrow, I want to watch the football games - and have a good dinner ready!

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#20) On November 24, 2010 at 9:51 AM, Mary953 (74.21) wrote:

Dragon,

Thanksgiving tomorrow, so today I am up PIE and other homemade goodies.  Pecan pies done, Chocolate pies done, Dutch caramel apple ready for the oven, Pumpkin will be last so that one is warm for tonite.  Plus a quick trip now over to where my daughter works to take her some hot cornbread (most goes to the dressing, but she likes a bit straight from the oven.)  Then back to get the sweet potatoes off the stove. 

Stocks will have to rise or fall on their own today.  Tomorrow, I want to watch the football games - and have a good dinner ready!

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#21) On November 24, 2010 at 10:04 AM, dragonLZ (99.54) wrote:

Wow, Mary, you really take Thanksgiving baking seriously. :)

Great stuff. I'm not much into pies and sweets, but I know that my wife would kill to be at your Thanksgiving table.

Happy Thanksgiving to you and yours!

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#22) On November 25, 2010 at 10:34 PM, Mary953 (74.21) wrote:

Dragon,

The group at the Thanksgiving table grew from 5 to 7 to 11.  Since I planned for everyone to take home enough for a second meal, the pies along with all the rest of the dishes ended up scooped up by the surprise guests. 

The very best compliment to a cook?  Unexpected guests that show up at the last minute because they like the cooking and they know that they will be welcomed with joy!  Wonderful!  =D

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#23) On January 12, 2011 at 9:53 AM, topbooks (48.91) wrote:

Hi, Dragon

Your blog is the best. I enjoy to read it.

So, you do monthly scan 8000 stock based on volume changes, then check each stocks in the result list?

I use Fidelity's Weath-Lab to do the scanning. I am think write a WL script, which scan stocks if past month total volume great then twice of 20 month Moving Avg. Any suggestion?

Thanks, I will read all your blogs.

 

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#24) On January 12, 2011 at 4:08 PM, dragonLZ (99.54) wrote:

Thank you, topbooks. Tha'ts very nice of you to say.

I don't do much scanning or screening, but I do check MSN's Power Search for either Intraday or Week/Month high volume gainers. 

I guess they do all the work for me.

p.s.

On another blog you asked me about my 11-21 method (but your comment got deledet by mistake - as spam, I guess).

So far, I haven't shared that secret of mine with anyone. I'm still not ready to do that (I don't know if I ever will be).

However, next time we have a correction, remind me and I will gladly give you a list of stocks my 11-21 says are good picks.

Thanks again and Good luck.

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