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Thursday, March 25, 2004
Good evening friends,
Market Recap
There was a powerful rally in the market today with all the indices closing very strong and near their respective highs of the day (HOD). Even the beleaguered NASDAQ rallied 3%. This rally was due to the extreme over sold levels the market.
The NASDAQ managed to fill the gap down from Monday; that is a very encouraging sign. There is some resistance ahead, but this rally was on slightly better than average volume. The volume was a good sign, but it is by no means a clear sign the short term down trend is over. The NASDAQ is still below its 50 SMA, and the chart is still in a short term down trend. I would not be surprised to see selling tomorrow or Monday, resulting in a failure of this rally. Institutions normally rush in to buy their favorite stocks when the markets bottom. Although the volume today decent, it was not a sign that institutions were rushing in. I hate to be bearish, but I am still not convinced.
Accumulating Long Positions
We continue to enter long positions on stocks that have good charts because we do not want to be left out of the game if this rally is for real. I am guilty of chasing a stock today (SNTK). As I look at the chart tonight, I see we could have had a better entry yesterday when the stock touched the 9 DEMA and bounced. As I said in last night's commentary, these moving averages are very important and if played correctly can reward with big returns.
Case Study: SNTC
Yesterday, SNTC touched its 9 DEMA at .96, and today's high was 1.35. That is almost a 40% gain in 24 hours. It is easy to say now after the fact because who knew it would break out today? The point is that if you buy at the 9 DEMA, the risk is reduced and may generate excellent returns. Yesterday, the NASDAQ chart looked negative so I did not want to take a chance on buying then. Buying SNTK today at 1.30 was a good play on the charts because of the breakout on volume above 1.25.
However, the problem with buying breakouts like for SNTK is that at the time of breakout, the stock is already 30% above the 9 DEMA. So if the price is going to fall back to the 9 DEMA, the 10% loss rule is a hard one to follow. If you are a conservative trader, the best way to play breakouts is to select those that are within 5 to 10% of their 9 DEMA. That way, if the breakout fails you can get stopped out with a small loss. My opinion of any stock above the 9 DEMA is a hold, but in the case of SNTK, you will have more than a 10% loss should it fall back to the 9 DEMA.
I do not know how to explain it except determine if you are a conservative trader or a risky trader. I am normally conservative, but when I saw this market running this morning, I looked for stocks on our Bulletin that were breaking out. SNTK and VWPT fit the breakout criteria.
Market Outlook
Tomorrow, I will look for follow-through to confirm today's rally. Charts still need some work to repair themselves. Stocks in the Nano group were up today on news (NGEN, NANX, ALTI and TINY). If you are wondering why I did not buy today, take a look at the charts. The down trend has not been broken yet. These charts need more time to set up before I can get back in.s
Some OTC bb stocks for your watch list include BKYI, WWAT, and NEOP (mentioned many times and keeps going up)
As always, thank-you for your support past, present and future! Have a great night everyone; we will see you all Sunday evening.
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