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Monday, March 01, 2004
Good evening friends,
Market Recap
A very nice day for the markets today with the DOW only about 100 points shy from its 52 week high. The NASDAQ closed above the 50 DMA as I predicted in last night's Commentary. This is a good sign; I'll reiterate that if it can close above this level I will be more bullish. The Dow is carrying the NASDAQ right now, and if the DOW and S&P can keep running, the NASDAQ should follow. The key resistance area should be tested tomorrow; I mentioned that 2070 would be a test and I also mentioned that this trend line rise's everyday so 2072 is now the key test. Let's just say between 2070 and 2080 is resistance depending on how long it takes to reach that area, my guess is tomorrow.
Small caps were on fire today and many of our Bulletin stocks were up big in this nice rally of the indices. Maybe the buyers' boycott is finally over. The good news tonight is that many of the charts for Bulletin stocks are really starting to shape up well over the last few trading days. You'll see this when reviewing buy points in tonight's Bulletin. On these charts, we can clearly define good buy points. I also have a few charts in the chart section that look particularly good.
Trading the Trend
Someone asked over the weekend if it was advisable to buy and sell based on support and resistance levels. I think there's some basic confusion around this, so I'd like to spend a few minutes discussing it. Buying at support levels and selling into resistance is actually a method that many professional traders use; it's basically trading the trend line or channel, and it is a very good strategy. The time when this method is most beneficial is during times of uncertainty within the market. A sideways market, just like the one we've been in recently, is the time to trade the channel. In sideways markets, we must find the channels that a stock has a tendency to trade within. Where does the stock drop down to before rebounding? Where does the stock run up to before pulling back? If you can look at a chart and answer these 2 questions, you've just located the stock's trading channel. You can now use that information to profit in a side ways trending market.
The trend is your friend. Whether that trend is down, up or sideways, learning to trade with the trend will help you profit under any market conditions. If you pay attention to the trading tendencies of a stock, you should notice a trading pattern. Many people will look at a stock chart and simply see a bunch of lines going up and down but the smart trader will see a pattern and trade it to their advantage.
What's Up Doc?
It's like a doctor looking at an EKG. To the untrained eye, it's just a line that keeps going up and down, but to the trained eye, it shows a pattern. Your doctor is able to discern a lot of information by simply looking at the line. Traders can also learn to be “doctors” of the stock chart. We can look at a chart and know when it is behaving normally. We know when a stock looks sick, and we know when a stock looks very healthy. When a trend line is broken, either negatively or positively, the chart is telling us that the stock price wants to start a new trend.
In a sideways market, this channel becomes our friend. By identifying the natural pattern of the stock, you can determine the best place to buy (support) and the best place to sell (resistance). You can then trade this channel consistently and make a decent profit. The key is the channel lines. If you buy a stock on a dip to support, you should always set a stop loss below that level of support. So if the stock is going to start a new trend to the downside, you are protected. You can also use this when a stock begins to encounter resistance. If volume picks up and the stock seems to be testing the layer of resistance, keep your eye on it for a breakout above the channel and a new up trend to start. Otherwise, you know that it's hitting resistance, and it's time to sell.
Hopefully in time, each of you will earn your ‘Doctorate in Stockology'. It takes a lot of time and patients within the market. I want you to learn what the charts are saying and how to identify a healthy stock from a sick one. Remember, we just want to find the healthiest of stocks and ride those up as they break out into new trading trends.
Some OTC BB stocks for your watch list are CDSS (hard to believe this is an OTC BB stock) MDPA, NEOM, and ZKID.
As always, thank-you for your support past, present and future! Have a great night everyone; we'll see you all Tuesday evening.
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