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Sunday, October 05, 2003
Good evening friends,
A massive gap up in the markets on Friday due to surprise great economic news and this gap held up all day, including into the close. I've got good news and bad news tonight. I'll give you the good news first. We locked in our September gains before the NASDAQ took its dive in the last week of September by going to cash when we saw the trend break Good on us! The Bad news is, we missed out on the first 3 days of October when the NASDAQ recouped almost all the losses of the last week in September, Bad on us. Lets recap the last week in Sept and the first 3 days of Oct. The last week of Sept, I showed a chart of the NASDAQ breaking the trend line. I recommended we go to cash and the NASDAQ continued it's slide erasing all of the gains it made in Sept. However, we locked in our gains by selling the break of the trend. I then gave you a target of 1780 downside on the NASDAQ based on the 50 DMA line and said I was confident this support would hold. As the NASDAQ came down very close to this level, we could have bought in and played the bounce. Thinking it would hold, this would have been the correct move. However, October has been a historically bad month for the market so I was hesitant on getting back in until we could confirm the direction the market would take. I would rather error on the safe side then pile in 100% long stocks and have the NASDAQ crash through that 1780 area and head down to the 200 DMA. We would have been shell shocked if that had happened. News drives the markets and we just can't predict what the economic news will be. If we are in cash and the news is bad Friday, the market tanks and we don't lose anything. It's a gamble I'm not willing to risk. All we lost on Friday was opportunity, we still have all our cash. . The first 3 days of Oct were great for the markets. On Tuesday, the last day of Sept the NASDAQ closed very close to the 50 DMA target. So Wednesday 1 Oct was the key day as far as I'm concerned. This was the day I expected a move, just didn't know which direction. The NASDAQ could have crashed through that support and continued down but instead it rallied and was up nicely on the day. Thursday was an another confusing sign causing me to be hesitant of the rally. There was no follow through to Wednesday's action. The market traded and closed flat on Thursday signaling a possible end to the one day wonder rally. Then Friday came and we had great economic news before the open and the gap up came strong. This news was unexpected and could not have been predicted by anyone. As a result of this news, the NASDAQ soared above my resistance target of 1850 I had mentioned last week on the charts. So now what do we do? We are sitting here with all our cash and the market has moved up 5% on us in 3 days. This move is more then the 61% retracement between the high of the NASDAQ and the recent low of 1786 (near the 50 DMA). Since we have came back so far in just 3 trading days, one could believe the market is now over bought right here. I don't want to chase this rally and get caught up in the pullback. Instead, I will continue to trade as I always have, looking for stocks with good chart set-ups awaiting a break out. This strategy has been good for us and is less risky then just blindly following the masses into these rallies. I'll be the first to admit, we should have bought the dip near 1780 and played the bounce but I didn't feel the risk/reward was a good one entering the usually seasonally weak month of October. This rally does signal good news in that it's the beginning of the 4th quarter and fund managers have been buying up tech stocks the first 3 days of Oct. This to me says, they believe it will be a good quarter for these stocks and are positioning themselves for the nice end of year rally I have been predicting would come for the last 5 months now. Remember one thing, never panic buy at the open, and always wait for at least 30 to 60 minutes to confirm the gap up is real. Yesterdays gap would have been okay to buy after that first hour because there was no selling as I thought there would be the first hour. These gaps lately have not held up so in my opinion, Fridays gap was questionable because selling the open has been the recent trend. Given the surprise good news, the gap did hold and I could tell it was going to after the first 2 hours of trade. Due to this wacky sell off and massive panic buying that last week or so, charts are all over the map and very hard to read. When charts are like this, they can be very unpredictable. We are going to have to change the criteria of the stocks we have been trading in. We need to make 2 changes, 1) we need to trade in only stocks that average a minimum of 400K shares per day in volume. It's becoming a liquidity problem for me with stocks trading less volume then that. Why put them on the Bulletin if I cannot trade them? . Any less then 400K and I could end up getting stuck in a stock because I can't get out without crashing the price and we don't want that. I could identify these stocks with buy points and keep them in the Bulletin for the smaller players but you would never get an alert from me to buy. 2) We are going to have to start looking at higher priced stocks (5.00-15.00 range) this should not come as a shock to you because I have mentioned before that we would do this when there were few quality charts left for us to take positions in with the micro caps. We are running out of stocks in the 1.00 to 3.00 range. Sorry to ramble on tonight but I felt you needed a full explanation and recap of what my position has been and where we are headed going forward. I'll see you all Monday night
* REMINDER- I am coaching in a fall baseball tournament in Nevada on the 16-18 Oct. It's a five-hour drive so I will be leaving Wednesday night the 15th. Because of this, only a quick Bulletin will be issued the 15th. I will issue a full Bulletin from Nevada Thursday evening from the hotel providing I have connection. If not, there will be no Bulletin for that night. I will not be on the boards Thursday or Friday the 16th and 17th but will view all posts in the evenings from the hotel. This is the final baseball tournament of the season. |
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