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Wednesday, March 31, 2004
Good evening friends,
Market Recap
The NASDAQ saw the resistance I have been talking about over the last few days at just above 2000 and could not get through the resistance. The NASDAQ turned back as expected and both the Dow and NASDAQ closed in the red.
We had another busy day at TWPD. We were able to sell FMDAY for a 23% gain, but we bought back our position on a break above 2.05. We were shaken out off AAC today with a 6% loss and that stock took off on news right after we sold our position. I still say AAC stock is a longer term hold; it is tough to look at everyday however. We also bought AKS (a steel sector stock) and WIND (a security sector stock). Both of these sectors are hot and we need to have some exposure.
Do not forget to check the short list on the Bulletin. QLGC has been on our Bulletin since above $42.00 and today it closed at $33.00, down over 25% since we listed it. Any stock below the 200 SMA is below that average for a reason. Stocks almost always move ahead of news and in this case, the trend was down before this bad news hit today. It gapped down and the shorts made a nice profit on their position. I was a key board stroke away from shorting this stock at 44.50 a couple days ago but the market rally prevented me from doing so.
April 1
Big economic data will be coming out in the tomorrow morning. It is also a new quarter of trading starting tomorrow, so be prepared for some volatility.
The Break-Out
If you are a prison guard you might hate the word “breakout”, but breakouts are music to a stock trader's ears. Since our inception, we have been buying high and selling higher. Nobody can argue the success of this style the first 9 months of the service.
It was only recently that this style of trading has had difficulty because of the false breakouts we have seen in the markets. These false breakouts tend to happen in a sideways or down market. I continue to believe breakouts are the way to trade, but when they do not work, we have to alter our style to fit the market.
Recently we have been trying to buy stocks pulling back with limit orders instead of stocks that are breaking out. For the new subscribers, I would like to talk a little tonight about breakouts since we may get back to this style soon. I say soon because if the NASDAQ can break above its 50 SMA again, then we will be back in an uptrend and that is the best time to buy breakouts. I want you to be ready to take advantage of this aggressive style of trading. The Russell small cap index is looking good again and as I have been saying all along, small caps will lead this next bull market. We are seeing signs of this again lately.
A stock that breaks out is changing its natural trend. I have mentioned before that stocks tend to trade in channels. They will bounce between levels of support below and resistance above. That is a stock's trading range, and is where the moving averages are derived from. I look for stocks with moving averages slanted up and moving higher. When the moving averages go higher, so will the price of the stock.
You might see a stock that continues to go up to a certain price level before coming back down. That stock is testing resistance. Typically it will fail a few times before getting through the resistance level and breaking out to a higher trading range. Once that level has been broken, the old resistance becomes a new level of support.
Volume is the key once again. We have all seen failed breakouts. A stock suddenly climbs to a new high, only to fall back down into its normal trading range. That happens when the volume is not there to sustain the breakout. Breakouts without volume will fail 90% of the time. We all remember the line used in the famous O.J. Simpson trial right? I have a similar line concerning breakouts that I like to use:
“IF YOU SEE IT FAIL, YOU MUST BAIL”.
A good stock trader rarely gets caught in a bad trade because they consider doing so a crime against the profession.
OTC BB's:
Those OTC BB stocks keep running:
- IACH (now up 35% in two days since mentioned)
- PLKC (consolidating, could go either way)
- CCHI (closed at high on 2X volume)
- IPVO (looks ready to breakout any day now)
- PRGF (up 10% today on 5X volume)
- ULTR (forming flag, should move in a day or two).
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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