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Monday, March 15, 2004
Good evening friends,
Market Recap
I mentioned in Sunday's Commentary that one should not get too confident about Friday's big snap back rally. I came to this conclusion based on the weak volume I saw in the rally on Friday. Again, volume is the key and there wasn't sufficient volume to keep the market up. The NASDAQ undercut another low today and closed at the low of the day. Volume on the down side was more than Fridays rally, but on the bright side, the volume was lighter than the previous sell offs. This is good news and might indicate that the selling could be drying up.
I suspect the next support for this index will be 1900, then 1880 after that. We are getting close to where we will need to start thinking about re-entering this market. The NASDAQ is over sold, and if it reaches the 200 SMA we will need to act fast because I think we will see a major bounce. If we are not ready to act when that happens, we will be left behind.
Reflecting On the Correction
I spent some time this weekend reflecting on the correction that we have seen in recent weeks. If we are lucky, in the coming weeks we'll see the NASDAQ bounce off its 200 SMA and confirm for us that the correction is over. Then we can expect a strong move up ahead.
The other possibility is that we will see a breach of this long term average and confirmation of an extended downturn in the market. Then we will know that we need to start scanning for more short selling opportunities. With all the economic news due out later in the week, it is going to be a pivotal week to determine the direction we are likely to see over the coming months. The interesting point is that we are looking at a very narrow time frame to determine the course of action for many months to come.
I think too many subscribers are basing their entire future with us on a few short weeks. This is the first February that the service has seen. It is also the first real correction in the market that the service has seen. There are thousands of investors losing money on a daily basis because they fail to plan and refuse to sell. They hold and watch their portfolios crumble in this market decline. There are many people who are looking for someone to give them a magic solution to the stock market, so that every pick goes up 50% or more. People fail to see that in a market correction or a sideways market sometimes it pays to go to cash and sit patiently.
We have seen a number of subscribers canceling lately, and I fear that it is people who came to the service expecting that we would be trading every day no matter what the market throws at us and regardless of market conditions. These people have unrealistic expectations, and if they continue to trade on their own and refuse to break bad habits, they will likely be wiped out of the market and replaced by new sheep who do not know any better either.
What we bring to the table with this service are proven trading techniques that have worked for me year in and year out. There are sometimes periods within a single year that I am out of the market for a month at a time. This does not hurt my bottom line, it only preserves it. Trust me, I have been around the trading block a few times and when I recommend going to cash it is for good reason.
I am sitting out of this market right now for a good reason, not just because I feel like it. I would not be out if the market was going up. The fact is that we are sitting on our cash for the 3rd time since the service began and all 3 times we were in cash the market has gone down. Markets correct and we are always prepared when they do.
The trouble is that some people are always looking for the next rocket ship and laying their money down for a ride. Ultimately, those people will find the market very difficult to beat if they do not change their ways. They are looking for a fix any way they can get it. If it doesn't come right away for them, they move on to the next idea. I see hints of this on the message board almost daily.
We take a position in a stock that moves slightly in the opposite direction and without fail; the board begins to fill up with messages asking if we should dump the position. People are not giving enough time for things to develop. They too will have a difficult time of it if they cannot put things into perspective and wait patiently for things to follow through.
Some of our members are quite good at being able to step back and look at the big picture. Those are the true market professionals amongst us. They will ultimately win, because they know when to be in and when to be out of the markets. They know when to sit on cash and they do not forced trades. They know that if we sit on cash for a week or two, it's not the end of the world. They know that sometimes it pays not to trade, but rather to wait patiently for confirmation on where the market will go before getting back in. They have the long term perspective, and know that by sticking to the plan they will succeed.
The fact is that at the end of January, we told everyone that February would be a tough month for trading and recommended lightening up on long positions. In early February we recommended going to cash. Since that recommendation, the NASDAQ has dropped over 150 points.
Sometimes this service is not just about making money, it is about not losing any. I think we have done a good job saving people from suffering through this down turn by giving them advance notice of this decline and forewarning them to go to cash and ride this out. That advice before a market decline is just as valuable to your portfolios as a winning trade. Think of the money you have saved by not being in the market over the last month.
It does not matter if you are brand new to the service, or if you have been with us since the beginning, we all need to think about our perspective. We have a solid plan in place, and if we stick to it we will win. Do not let the minor set-backs cloud your vision of the plan and the goal. Do not focus on one tree, if you do, you will miss the entire forest.
As always, thank-you for your support past, present and future! Have a great night everyone; we will see you all Tuesday evening.
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