Good question and we are getting it a lot in emails and in the seminars. It is the hot sector right now because it is the focus of some fear of terror. But that is not all. There is some real rationale for the stocks’ gains. Several have the technologies that we are going to be using to help screen for terrorists, biological or chemical agents. Why? Because it is an enormous task to quickly and efficiently screen large numbers of people, baggage, samples taken in the field, etc. These are realities in our lives now and we were way behind.
Thus, there is some long term value in these stocks. Does that justify the recent rapid rise? The market tends to overreact; while there is solid basis behind the moves, they were also driven by fear and speculation. Thus it appears that many of these have gotten ahead of themselves. They have exploded higher in ballistic moves, leaping up and are well above even their short term moving averages (e.g., the 10 day MVA).
Stocks cannot continue to rise in that manner. When the initial surge as a result of the U.S. attacks starts to cool, these stocks will more than likely pull back toward those near term moving averages. If they were in good bases, that is better; they will tend to hold at the breakout point or other support levels. Otherwise, where they come to land is a bigger question. What we are looking at right now is for the hype to die down and the stocks come back and find some support or form a better level to move off of. After a ballistic rise, stocks fall harder; they need good support to catch them. We agree that they are extended right now in the immediate aftermath of the attacks. We don’t want to chase them right now but are going to let them come back. Again, two factors have driven them higher: fear and the realization that we will need this technology from now on. One is short term and we are seeing the effects of that right now. The other is longer term, and that will show itself when these stocks pullback to the nearest support and they either hold their and start back up or form a consolidation to mount the next move higher.
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