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Featured Story
Nasdaq at 4,000: It's Not Tech Pushing the Index Higher
On Monday, the Nasdaq index topped 4,000 - its highest level in 13 years. But unlike the last time this happened, during the notorious dot-com boom, tech stocks are not the prime driving force. The sector that's been pushing the Nasdaq higher this time around is soaring because the companies in it are making gobs of money - and have the potential to make much more. This is where you want to be invested in right now.. NASDAQ
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Will the Facebook Stock Price Overcome This Latest Concern?
Facebook (Nasdaq: FB) and its struggling stock price have been in the spotlight since the company's IPO, but rarely for good news. This week started no differently.
Besides its poor stock performance, Facebook already has been blamed for halting this year's IPO market. There hasn't been an IPO since Facebook debuted on May 17.
Facebook also is taking heat for wreaking havoc on Nasdaq's reputation after technical glitches marred Facebook's debut. Nasdaq revealed last week that it will pay out $40 million in compensation damages to brokerages that lost money during the IPO fiasco.
Finally, many investors claim they were misinformed on Facebook stock's first-day potential, and have initiated a class action lawsuit against the underwriters.
Now the most recent bad news has cast even more doubts over whether or not Facebook can perform as well as investors expected.
Has Facebook's Growth Reached a Ceiling?
Over the weekend The Wall Street Journal ran a report on Facebook's growth slowdown, especially in the United States.
Citing market research firm comScore Inc. (Nasdaq: SCOR), the report indicated unique visitors to the Facebook Website in the United States increased just 5% in April from a year earlier.
That was the lowest U.S. user growth rate since comScore started tracking the data in 2008. It compared very poorly to the data from the past two years, down from 24% growth in April 2011 and 89% in April 2010.
The amount of time Facebook users spend per month on the site increased, but also at a slower rate than before. Facebook users' time-on-site was up 16% from a year earlier, compared to a 23% increase in 2011 and 57% in 2010, according to comScore.
"The assumption that Facebook can maintain the 100% growth it reported Q2 2011 is no more plausible than the 45% growth it reported [earlier this year," said Money Morning Chief Investment Strategist Keith Fitz-Gerald after the stock started trading in May. "Google couldn't. Apple couldn't. And both of them are real businesses."
It may be a matter of numbers limiting Facebook's growth rather than a changed perception or heightened dislike of the company. Facebook is estimated to have already captured 71% of the 221 million U.S. Internet users, leaving little room for U.S. growth.
That is troubling as the U.S. accounts for approximately 56% of Facebook's 2011 ad revenue of $3.1 billion, according to the company's regulatory filings.
Morningstar analyst Rick Summer stated that Facebook cannot expect to have the same post-IPO growth as Google Inc. (Nasdaq: GOOG), due to the fact that Facebook already has a dominant market share of its industry and a very high number of Internet users.
Summer suggested that increased ad pricing could drive future growth.
"Facebook is already a dominant Web platform and they've got significant Internet penetration today," said Summer. "Ad pricing is clearly going to be where their growth is going to come from."
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These High-Tech IPOs Are Fueling the Nasdaq Rally
Don't look now but big paydays are here again in the tech-heavy Nasdaq.
From the depths of the 2009 bottom, the Nasdaq is up 139%, hitting levels it hasn't seen in more than 10 years.
In the last three months alone, the bellwether index is up nearly 19% -- outpacing the 12% gain in the S&P 500.
But here's the thing: It's not all about Apple.
The high-tech IPO market is practically on fire. One of them is Jive Software (NASDAQ: JIVE).
Since Jive debuted last December, shares have jumped 25% from the offering price on the first day.
Since then, the stock has done nothing but power ahead. At the close of trading Thursday, Jive had nearly doubled in less than four months!
Hot High-Tech IPOs are a Major Market Trend
But that is just the beginning. Successful new issues like Jive reflect major trends reshaping markets.
Jive creates tools that help businesses run social networks, clearly an important way for many firms to reach new clients.
Jive is hardly alone. Several high-tech IPOs are showing excellent returns in the market's strong rally.
In fact, this actually is the best overall period for tech stocks since the "dotcom" crash 12 years ago.
Aside from Jive, several other IPOs have turned in double-digit gains in the last several months helping to lead the overall market higher - especially the Nasdaq.
Of course, the Nasdaq still needs another 40% surge to match pre-bubble values. But that's not the point.
Investors need to remember that every bull market contains leaders that have new products in new fields.
That is what always lands solid high-tech IPOs in the winner's circle.
The good news for investors is that they can expect to find more new issues in the weeks ahead.
PricewaterhouseCoopers LLP said in a recent report that 274 firms filed registrations in 2011, the largest number in several years. Of those, about 160 remain in the IPO pipeline.
Now don't get me wrong. I'm not suggesting you throw a dart at the IPO board. Far from it.
You still have to remain a disciplined, focused investor.
Just think if you'd tied up a lot of funds in BATS Global Markets. The tech-focused exchange had to withdraw its IPO last week because of a software glitch.
Of course, that kind of mistake isn't just stupid. It's inexcusable. But let's not focus on the negative.
There are just too many winners to look at.
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The Case for Spitting into the Wind (At Least for Now)
You've heard the expression "You don't spit into the wind," haven't you?
Well, it's true when it comes to trading and investing, too. You keep the wind at your back, and you don't give up easy profits by bucking the trend.
That's all well and good, so long as the wind is coming from a discernible direction. I prefer a warm southwest breeze myself. That's why I live where I live (in Miami).
But we have no control over the many ill winds that blow over our investing horizons.
The best we can do is stay aware of subtle shifts in directional changes, and watch out they don't strengthen into hurricane-force monsters.
I've been cautiously (too cautious, I admit) bullish since October, and I remain optimistic that stocks have enough momentum to try and push through important psychological barriers - such as 13,000 on the Dow, 1,375 and 1,400 on the S&P 500, and 3,000 on Nasdaq.
That doesn't mean we won't see a correction first. Or that last Tuesday wasn't a tiny correction in and of itself.
But 30 years of hardcore trading, and catching every major move in that long time span (no, I hardly ever pick the exact top or bottom, but I have come close) has taught me to go with my gut, to know when I "blink" that it means something.
And lately, I'm starting to "blink" more and more...
I'm getting the feeling that something's wrong, and, somewhere, the eye of a terrible storm could be forming. There's nothing out there that I've read (and I read a lot), or heard, or come across in any research, either quantitative or fundamental, that articulates what this nagging feeling is that's hanging over markets.
So, it looks like I'll have to be the one to put it out there.
But first let me be clear. I'm not spitting into the wind here. I'm still going with the path of least resistance.
What I am doing is presenting the backdrop of what people have lost sight of as they look front and center on the investing stage.
Am I saying the eye of a hurricane is forming? No. I'm saying it already has formed.
I'm saying keep buying cautiously and keep raising your stops as markets go higher, if they do. I'm saying keep watching these developments with me.
Things change, and this brewing storm could dissipate, but it could also turn really ugly, really quickly.
If the storm strengthens, and that's my bet, have a fail-safe plan to get out of speculative long positions, a plan to selectively add to core positions on the way down, and a plan to put on short-side positions that will make you a ton of money if I'm right.
Okay, ready?
Here's where the winds have shifted...
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