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Alessio Rastani: Why Apple, Google and Amazon stocks are still hot

by LLB Editor
22nd Nov 12 12:00 am

Controversial trader who told the BBC “Goldman Sachs rules the world” gives his verdict

Our columnist Alessio Rastani is the self-proclaimed trader who shocked the world by declaring live on BBC News that he goes to bed “every night dreaming of the next recession” and that “Goldman Sachs, not the governments, rule the world”. He’s a controversial figure, not least because he’s a self-taught non-institutional trader with no FSA license. But he certainly isn’t shy about sharing his views. Do you agree with his words? (His words are his own, and in no way endorsed by LondonlovesBusiness.com.)

November 2012 has so far been a terrible month for stock markets. 

The US market is down nearly 8% from its September highs and the UK market is down 5.5%.

But we should keep the “big picture” in mind right now…

When I say “big picture,” I mean looking at the stock market from a multi-year perspective – not just a few months. Thinking this way will help you make more money over the coming months.

You may remember what I said on the BBC a year ago – that I was “dreaming of a market crash.”  

Why did I say that?

Because when a market has a correction (or “crash”), this creates a great opportunity to buy quality stocks very cheap.

The best time to buy stocks is when they are out of favour and on sale. Just like the best time to buy a winter coat is in the summer, not when it’s prominently displayed in the windows at Selfridges.

Right now some of the best stocks out there – like Apple, Google and Amazon – are extremely cheap.  

But first let’s look at the UK Stock Market – the FTSE 100 index:

FTSE chart

The FTSE has been in a symmetrical triangle pattern since 2009. 

Notice that when the FTSE came and “tested” (or touched) the bottom part of this triangle pattern in 2011 and in June 2012, this provided a valuable buy opportunity each time. The FTSE rallied from 5250 in June to 5900 (the top of the triangle) by September – a return of 12% in three months.

Now let’s look at two top quality tech stocks such as Apple (AAPL) and Google (GOOG). 

AAPL had a tremendous run from $400 per share back at the beginning of the year to $700 in September.  That is a cracking 75% return in 9 months (see chart):

Apple chart

Last week we were fortunate to see AAPL back at its $500 psychological level (we say “psychological” because investors tend to remember and place some importance on round numbers). 

AAPL managed to “bounce” from that level and close on a strong support at its 300 period moving average (red line).

So AAPL is currently at nearly a 30% discount from its all time highs.

We are faced with a similar picture on Google (GOOG) – see chart:

Google chart

It is true that with Google trading at 20 times its earnings compared with Apple’s 12, is still a bit on the “expensive” side – even compared to its own industry.

However, I do think that we have reached a point – from a “chartist” standpoint – where the stock is due for at least a bounce.

Google currently is at a strong support level at $650. This is a combination of its summer trendline (red line) and its 200 day moving average (green line). 

The 200 day moving average (MA) is used by a lot of funds to determine whether a market (or stock) is in a bull trend or bear trend (i.e. a buyers or sellers market). For this reason the 200 MA is a very important level in the market, from a technical standpoint.

A break below the 200 day moving average often triggers “sell programs” which can result in the stock going lower. This has not happened yet, nor do I have any reason at this point to believe it will.

So for me, both Apple and Google present interesting and potentially good buy opportunities for the long-term investor.

But remember – just because something is “cheap” does not mean that it is a good reason to buy. 

You don’t want to catch a falling knife either… which can be dangerous.

Sometimes even a “great” stock can continue falling even though it is very cheap.  For example, for the most part of 2010 Google dropped by 27%. Netflix, one of the best stocks of 2010 became one of the worst stocks of 2011. 

Picking the right stock has nothing to do with how “cheap” it is.

I have always said that unless you can find three good reasons to buy a stock – other than the price – you have no reason to buy it. 

For further information about trading the markets visit my website www.LeadingTrader.com.

Alessio Rastani gained fame and caused controversy last year by stating live on BBC news that he “dreams of another recession” and that “Goldman Sachs, not governments, rule the world”. The YouTube clip has since been watched over two million times, and Alessio has subsequently been interviewed by figures such as Sir David Frost. His website is LeadingTrader.com.

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