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Wednesday, March 24, 2004
Good evening friends,
Market Recap
Well, we did not get that decisive day I thought we would; there was not a big bounce off the 200 SMA or a drop through it. Something has to give soon, and from what I see tonight on the NASDAQ chart, it is not good. There are the makings of a bear flag after a gap down and that is never a good sign. Nothing new to report tonight, Cash remains King with limited trading is all we can do.
The NASDAQ may be holding up until the rest of the indexes drop closer to their 200 SMA's so they can either all fall through them together on one ugly market day, or they could all bounce off of it at the same time. I am getting more and more bearish as the days go on and I hope I am wrong, but I do not think the 200 SMA on the NASDAQ will hold. I may not take that many long positions when we touch the 200 SMA as once planned last week. The charts change daily, and the change I see is growing more and more negative.
The Bulletin
Folks, trading method at TWPD is to find the best looking charts at the time they are listed on the bulletin. The key phase is “at the time”. As we all know, charts can change in a hurry in a tough market like this. When a chart goes negative, the stock is removed from our Bulletin if we do not already have an open position.
Charts Change Fast
I continue to find good charts each night, even in this down market. However; they could very well change a few days from being listed. In down markets, stocks go down and there is not much we can do about it. We need to be able to accept this fact and move on to the next good chart.
Caught in the Middle
We are still above the 200 SMA in all indexes so we can not say that we are in a bear market yet; this is the reason we have not shorted many stocks. We can not really go long because the short term trend is down. We are caught in the middle, and that is why I have been recommending staying mostly cash.
100K Trade Record
I consider this to be a sideways market until a longer term trend is confirmed. This is a conservative approach and has worked well for preserving our cash. The NASDAQ is now down 5% year to date while TWPD is up 15% year to date. This is based on our new 100K portfolio started on Jan 1st, putting 5% of the portfolio balance in each trade. So, while the markets have performed terribly so far this year, we have out paced the NASDAQ by 20% YTD. We can and will continue to out perform the market over the course of a year. I do not make guarantees but it is highly probable that we will continue to do so as we have since our inception, no matter what market we are facing.
Moving Averages
I mentioned yesterday that I will be talking about some indicators I use, and tonight I would like to start the series with one of the most important ones, the moving averages.
Moving averages are derived from the closing price of a stock over time. They are used to show a linear trend on a chart. There are EMAs (Exponential Moving Averages) or SMAs (Simple Moving Averages). Moving averages are lagging indicators. That is, they tell a picture of what occurred. The data points that make up a moving average come from the close price on stocks. So, they always represent data that is already known to us. The EMA places more weight on the most recent pricing trend, so it tends to have less lag than the SMA.
Trends in Moving Averages
The general upward or downward direction of a moving average is called the trend.
For short term movement, I typically use the 9 day and 33 EMA. If it is longer term, then I use a 50 day and 200 SMA. The reason being the length of time you are focusing on when looking for a trend. If you are looking for a stock that is getting ready to move up, you want to focus on the short term. I use long term trend lines if I am looking at shorting a stock or for a longer term hold. What you are basically looking for in either the long term or the short term is the direction of the trend. Up is good; down is bad (unless you are planning on shorting).
Support and Resistance in Moving Averages
The moving average can also be a decent signal for support or resistance. You have often heard me talk about buying a stock for a quick bounce play. How did I know it was likely to bounce? Well amongst other indicators, the stock had dropped to its short term moving average. That is the most likely spot for a stock to bounce. It usually represents a fairly decent level of support.
New Trends in Moving Averages
Lastly, you can use the moving averages to identify new trends in stocks. You might have heard me or one of the moderators mention in the past about a cross in the moving averages. Anytime you have a short term moving average crossing over the mid term average, or the mid term crossing over the long term, you have the potential for a new trend forming. A positive cross would equate to a pending positive move in the stock. While a negative cross would equate to a pending negative move.
If the trend is your friend (and it always is) then the moving average is your best friend.
Some OTC BB stocks for your watch list include: BPWRF, LINN, TCOW, and WWAT. (These stocks are from yesterday, but still look good.)
As always, thank-you for your support past, present and future! Have a great night everyone; we will see you all tomorrow evening.
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