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Tuesday, February 17, 2004
Good evening friends,
Nice Market move today for all the 3 major indices. The S&P 500 finished just below its 52 week high. The bad news for us is that small caps lagged. No need to worry, they will be back in the game soon. There have been many days when small caps have out performed the rest of the market so these days are bound to happen, but it does not spell the end of small caps by far. Bulletin stocks making new highs today included SPAB, GEB, ELGX, CLN, LGF, and ITIG.
Breakouts and Gaps
There's an old saying, “Amateurs open the market, while professionals close it”. It's amazing just how true that is. Have you ever wondered why a stock gaps up at the open or even in the pre-market, only to see the shares decline as the session gets past its first hour of trading? Or a stock that starts off light, but by mid day turns into a rocket that closes near its high of the day? It all comes down to who is out there doing the buying.
The pre-market is about as bad an indicator of direction that I can think of. Since any breakout needs volume to sustain the move, we can't trust several thousand shares going off in the pre-market at a substantially higher price. There's always a rush to buy a hot stock and the average investors are lined up thinking they're getting on the money-go-round. What they find out after they've taken a seat is that they just got on the ‘demon drop'. The stock begins to decline in the pre-market and then drops further as the day goes on. It's my goal to make sure you're not buying a ticket to ride, without knowing exactly what ride to get on.
There are many false breakouts, and I've mentioned many times, watch out for them. Moves in a stock must have volume behind them to sustain the advance or the decline, as the case may be. When I issue an Alert, I am doing so because the stock is moving or is set to move and the volume is already present. I've issued some Alerts recently where by 10am the stock has already traded its entire daily average volume. When you see stocks like this, there is a good chance that it will continue to move upwards throughout the course of the day.
We've had a few stocks that gap down on us. The charts will tell us what direction the stock wants to head in, but it can't prevent an unexpected press release or a bad reaction to something going on in the news. Obviously this doesn't happen to us very often but when it does, you really only have two choices. Since we've blown through any traditional stop losses that might have been in place, we can either sell for a significant loss, or hold the stock until the situation gets better. Strength will often build into a stock right after a significant decline. Why? Because those are the average investors who think the stock is now “cheap”. They are trying to buy low, and that is our chance to sell into that minor strength and get what we can for the stock. The average investor will eventually sell lower. Thus, buy low and sell lower mentality that we are here to teach you not to do.
The reason I tell people that I don't buy in the first 30 minutes of trading is because I don't want you to be one of those sheep in the herd. If there's a stock that we absolutely have to have, we'll buy it. But for the most part, we simply watch what's going on and decide where best to position ourselves. In summary, don't get caught chasing a stock or you'll get burnt, and remember who's opening and who's closing the market. It's our goal at TWPD to be with the smart money at the close market.
For the active OTC bb player, here is one for your watch list GUSH, IDWK, NTDL, SDNA, THIN, and SWYC.
As always, thank-you for your support past, present and future! Have a great night everyone; we'll see you all Wednesday evening.
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