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Sunday, January 25, 2004
Good evening friends,
A Needed Rest
Friday was another sluggish day for the market. The NASDAQ made a new high on Tuesday. On Wednesday and again on Thursday it touched this new high (2152) and backed off both days. Because it failed twice in two days to break through the high, it was a sign that this over extended market might be ready to take a needed rest.
For the 3rd day in a row I was trimming positions on Friday, raising cash on the stocks I felt would most likely stall should the market pause for a week or so. However, I did pick up some strong stocks on pullbacks to their respective support levels. I bought BKHM and OPLK, two stocks in the networking group. I believe in buying breakouts but in a stalled market, breakouts sometimes fail. We witnessed this during in late July, early August 2003, and again in December 2003. During these periods, the stocks we bought on breakouts failed. We had to cut our losses on many of these trades, resulting in the string of small losses you see in the trade record during these periods. We are witnessing similar failures last week and that is why I did some selling toward the end of the week. The stocks we bought on breakouts a couple weeks ago stopped their advance and have pulled back. When this happens, we have two choices: we can either sell these stocks to protect capital or hold for a continuation of the breakout when the market recovers. I chose to hold some and sell some. I'm playing both sides of the street right now until we see more clearly which way we are headed. This is also a time to buy stocks on our watch list that have pulled back to support levels, and I did a little of this on Thursday and Friday with BKHM and OPLK (the stocks mentioned above).
Re: Buy Strong Stocks on the Pull Back
Last week all the major stock indexes made new highs again on very strong volume this makes it very clear that the Bull is alive and well. Valuations and investor sentiment are at extreme levels right now and reminiscent of past market peaks. This means we are overdue for a correction, so we must stay as flexible and as liquid as possible. We need to be ready to act should we need to sell in a hurry if a turn in market direction does come. Always remember that bull markets can remain over bought for long periods of time. I'm not saying that we will get a major correction soon. I'm just saying we are due for one because of the lofty prices on the indexes in such a short period of time. Being due for a correction doesn't mean it will happen, but I do want you to be aware that it could happen. Be ready in case we do get a correction. Even in bull markets, 10% corrections are quite common. When they come, we need to be ready with our cash to pounce on the over sold strong stocks on their pullbacks.
A week or two ago, we had stocks lined up to get on the bulletin. There were many charts looking very good a worthy of our watch list. With this recent market activity, these same stock charts have since deteriorated. The charts are still in fairly decent shape, but they are just not in the shape they should be to make our list. We will not keep adding stocks just for the sake of keeping 50 on our list. If we don't think they will move, then they don't get on. We do have some new stocks tonight but our waiting list is getting thin right now and may stay that way until the NASDAQ gets it in gear again.
Here are some OTC bb stocks that look ready for a move SKVY, FMLY, GTEC, and GUSH
As always, thank-you for your support past, present and future! Have a great night everyone; we'll see you all Monday evening.
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