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Do the major brokerages truly “analyze” stocks? Or do their upgrades just move shares for a week or two so the fat cats can get out from under a falling stock?
On January 29, 2007, AG Edwards upgraded Home Depot (HD: NYSE) to buy. HD shares did indeed go up $1.18 (2.85%) over the next few days… and then crashed $5.66, a loss of 13.47%.
On June 20, 2007, Stifel Nicolaus told investors to buy HD shares. And once again, they were able to force the price higher, but only for three weeks. After that, shares fell more than 22%.
And just this month, UBS topped them both with an upgrade that pushed shares up almost 10%. Unfortunately for the investors who believe this tripe, we anticipate a correspondingly bloody correction this time around, too. Another 20% plus drop is not out of the question.
What do we know that the brokers don’t? We are using a relatively straightforward proprietary technical system: When price moves below the prime average and money flow is negative, watch out!
On Home Depot’s chart, we see three such sell signals that the brokers apparently “missed.” And HD shares have fallen like a rock, losing some 27% since this sell cycle began. My advice? If you are holding shares of this hypertrophic hardware store, use UBS’s “gift” to get out with your hide intact.
And as always, the select deployment of put options would magnify a 20% drop up to 80% in short order.
Adam Lass,
Market Analyst, WaveStrength Options Weekly
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