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Sunday, February 22, 2004
Good evening friends,
Last week was the 5th straight losing week in a row for the NASDAQ. It's tough to make money when the NASDAQ is going down, but having said that, we have still out performed all major indices so far this year. It was probably the worst week TWPD has had since our inception last May. If you lost money last week, you were not the only. I too lost money last week. It is very rare for me to have a losing week but it happens. Even day trading was a rough ride last week. I had to leave my screens Friday at 10 AM just to get away. We need to just get up and walk away sometimes and I did just that. I wouldn't count on things getting better for the NASDAQ anytime soon. The NASDAQ chart looks weak but the Dow and S&P are still in fairly good shape which is confusing because these indices normally trade in the same direction. Some subscribers have asked for an updated short list. I don't put as much time on the short side since most people in our service don't short stocks. However, I will start updating the short sheet once a week (on Sundays) for those few short players we have. Check the short sheet if you are interested. I did some bear scans this weekend and found many stocks below their 200 DMA so there are plenty to chose from. Finding so many stocks to short is also not a good sign going forward.
TA or not TA…. There really is no question.
Many people have recently been asking if the best approach is to couple Technical Analysis (TA) with Fundamental Analysis. We often refer to fundamental analysis as Due Diligence, or DD. So I want to spend a few minutes this evening talking about both approaches and why I choose to stick with TA for finding our stocks. Technical Analysis is the study of charts and looking for trends, to determine the future direction of a stock. Stan Weinstein said it best when he stated, “The tape tells all.” Simply put, Stan is saying that all the fundamental analysis one might choose to consider has already been factored into the stock price. Remember, stock prices move in advance of news in most cases and it can be seen clearly in the charts. If the news has been released, you can be sure that it's already been considered in the current price of the stock.
Fundamental analysis is the study of a company's “fundamentals”. This would include news, earnings, cash flow, financial statements, etc. The list goes on and on. What fundamentals won't tell you is where the stock is going. I'm not knocking Fundamental Analysis because I believe there is a purpose for it but it has no bearing on our style of trading (short term).
We already know the details of a company are public and that fundamentals have already been factored into the stock price, so why spend that time going over those fundamentals for swing trades? We move in and out of positions rather quickly and our goal is to move with the flow of the money. Charts tell us the direction a stock is most likely to go. They “speak” to every investor, but very few choose to listen, even fewer know how to interpret these charts. When money is preparing to come into a stock, the chart will tell us in advance, we want in ahead of that. If we took time to look at the fundamentals of every company before getting into the stock, the stock would move without us. The point is, momentum moves too fast for us to do our DD, and the field would be narrowed down simply by the time it takes to go over all that data to find a winner. In fact, many of our 100% and 200% winners from last year had no earnings at all. Most of these plays were “junk” companies and I'm willing to admit that, but the chart said the stock was going to advance and all we need to focus on is the movement for short term trading. Had we waited for fundamentals of these companies to develop, we would have never bought these stocks and subsequently missed out on these big gains. Sometimes we suddenly find ourselves caught in a good chart gone bad. This has happened in many of our recent trades. When the market takes a turn against us, charts will go bad on us quickly, that is going to happen, and that's just the nature of the business. We can't nail every stock, their will always be factors that we simply can't control.
The difference between TA and DD is the length of time you plan to hold the stock. For long term investments, of course you should always look into the fundamentals of the company you invest in. For short term trading, there is simply no need to do that - TA is all you need. If you rent a car for a trip, do you really care what company you rent it from? You only need to know that the car is going to move you from point A to point B. If you plan to buy that car and keep it for years, you'll want to research the car first (i.e., due diligence). The same holds true with stocks. We use TA because it gets us into the “car” that is going to be moving us from point A to point P (Profit) as fast as we can get there. We are simply “renting” the stocks with no plans to hold them for the long term. We want to rent these stocks to get us to Profitville and TA is the best approach to finding the “cars” that will get us there the fastest. If you're a long term investor, you are in no hurry so you may take the scenic route but if you are a short term trader like me, you get on the highway and get to your destination (Profitville) as quickly as you can.
For the active OTC bb player, these look like good movers FLCR, INIV, LAMP, FNIX, and SPSC.
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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