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Sunday, April 11, 2004
Market Recap
Yahoo came out with a great earnings report on Wednesday after the bell, the market gapped up on Thursday, and we were off to the races. Yahoo's great earnings report coupled with news of a 2 for 1 stock split, and the 2 for 1 stock splits for both TASR and RIMM the day before reminded me of the 1999 bubble all over again. Great earnings and stock splits were a common occurrence on a daily basis back then. Unfortunately, by the close of the day, it was all for naught as the Dow finished down for the day and the NASDAQ finished slightly positive.
It was one of those rare days when I felt we needed to be in stocks right at the open, so I started buying in pre-market and immediately after the markets opened. Usually I would caution against rushing in with the herd at the open, but I really thought with such great news, we would gap up and run without looking back. Reality set in when the smart money sold on the news and the markets started to slide. Still, I expected a run up towards the close after the mid-day selling but that did not happen either. Even though the NASDAQ finished green, I was not impressed with the action as stocks sold off throughout the day. The only saving grace was volume was below average.
Managing Our Portfolio
Our Bulletin currently has 21 open long positions at 5% of each. We are 3% margin at this time. Why 3%, should it not be 5%? If we put 5% of our portfolio in each position, then we should be 5% margin. However, we have 2 positions in ISO that we bought long ago. At that time, these two positions equaled 10% of our portfolio. Our portfolio has grown in value since buying ISO, so what was once a 10% position is now less than 10% (8% to be exact) of the overall portfolio balance, making that 21st position 3% margin instead of 5%. Still the same amount off shares at the same buy price, but because the value of the portfolio has grown; it is now less the 10% of the overall bottom line. If I choose, I can now double down again and it would only be 16% of the portfolio instead of 20%. I do not suggest doing so yet but if we should hold ISO for the long term, then at some point, we may be able to double down again someday. If our portfolio continues to grow, it may still be only 10% of the value and we will have double the shares we have now. All is not lost with a bad trade if you manage your portfolio correctly with your other trades.
Online Trade Record
The online version of trade record should be available soon. The online trade record will show exactly how the 5% compounded trading system works. We have made several trades lately and our percentage gain since inception (on May 19, 2003) is 425% on all closed trades as of today. During this same period the NASDAQ is up 23%. Our percentage gain for 2004 is 19% while the NASDAQ is up 1% in 2004.
Missing the Boat with Mutual Funds
Compared to our trade record, if you own mutual funds you are missing the boat. Phenomenal gains cannot be made by indexing with the indices. Trading is the way to go so that you can compound your gains by putting the same percentage of your portfolio in each trade as your portfolio grows. This can drastically increase you returns over time. The online trade record will show exactly how it works, and you will be able to use this money management system to your advantage.
Short Stocks
The list of stocks to short will be removed from the Bulletin until the markets become bearish again. There is no reason to be looking for short positions when so many stocks look good from the long side. The bull is healthy and will run again soon, and I do not want to get in the way of a raging bull. Have you ever been in a river and tried to swim upstream? It is a lot easier to go with the flow rather then try to swim upstream.
Continuing with our indicator series, tonight we will examine the Relative Strength Indictor.
How Strong is Your Stock?
Did you know that you can actually check the strength of a stock? The RSI or Relative Strength Indicator does just that. It is a measure the strength of a given stock. Just like the MACD, the RSI is an oscillating indicator. This means that it will show the movements up and down, over time. It oscillates with the momentum of the stock.
The indicator is set by entering a number of periods (typically days) for the indicator to use as a frame of reference. The RSI then checks the average of the stock's highs against the average of the stocks lows. This gives you a number somewhere between 0 and 100.
Stockcharts and other services will say that a number over 70 means the stock is overbought, while a number under 30 means it is oversold. This is true to a degree but as I have said with the other indicator commentary, you can not rely solely on one indicator to tell you the complete story.
Many stocks which are trading above all levels of resistance will show as overbought. That would typically be a bearish signal. However, since there is no resistance, many stocks will continue going up so the RSI alone cannot predict a bullish or bearish move.
The RSI is also like the MACD, where there maybe signs of either bullish or bearish divergence. If a stock is continuing to rise while the RSI begins to decline, that is bearish divergence. If a stock is continuing to drop, while the indicator makes a positive move that is a bullish divergence.
Lastly, the RSI can be used to find stronger stocks in a weaker market. If the general market is in decline, but a particular stock or sector is not going down, check the RSI. Chances are the RSI will be looking good. Strong stocks in a down market are typically your best performers when the market turns around.
OTC BB Update
- MOBL (Up 70% since mentioned at.10)
- BIOHF (mentioned here at .40 now .93 up over 100%)
- FRCP (up 12% on Thursday and still has room to run)
- FATS (up 26% on Thursday, in the commentary the day before)
Some others for your watch list include BKYI, PLKC, HQNT, BLLD, PHSL, TCPD, ZMBA, KTHK, and DLGI.
Since I am not updating the website with short positions until the market becomes bearish, I will mention some shorts each night that I think are good longer term shorts. AZO, KKD, S, and HOTT.
As always, thank-you for your support past, present and future! Have a great night everyone; we will see you all Monday evening.
Announcement: For new members, please make read the link “How to use Bulletin” at the bottom of the Bulletin page on the website. It is critical you know how to use this trading tool before trying to trade the stocks mentioned. The effectiveness of your trades will diminish if you are not using the Bulletin the way it was meant to be used.
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