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Sunday, April 18, 2004
Market Recap
The NASDAQ closed below the critical 2000 level Friday. It is also below its 50 SMA again, and this means that we are now back to a trading range. A trading range is the indecision phase of a market that can not decide which direction to go. Only when it breaks above the 50 SMA or below the 200 SMA will market direction be determined.
For now we are stuck in this trading range on the NASDAQ, and it could last a week or two. Any serious move in either direction will cause a breakout or break down, and it will likely lead to a massive follow through move in the same direction. If we break above the 50 SMA (which is at 2014 and slanting down) and can manage to get past 2153 (high of the year for the NASDAQ) then we will have a bullish breakout.
Any close below the 200 SMA (which is at 1920 and slanting up) is very bearish. Like individual stocks, when indexes close below the 200, they very often continue down further. We do not want to see this happen with the NASDAQ or it could get ugly fast. The Russell small cap index also fell this week from a double top pattern and the chart looks awful. This may be bad news but the value of our service is to see the road ahead and protect your portfolio.
You will notice tonight's chart of the NASDAQ has a reverse head and shoulders pattern. Hopefully, this is a good sign. A 50% cash position and 50% long position is recommended when there is not a clear picture of where the market is headed. 100% cash is ideal but with the NASDAQ over sold, being long on some stocks is a good strategy in case a bounce is in the cards.
Trading Out of a Trading Range
We must stay liquid in our positions and flexible at all times, ready to act on a moment's notice when the market turns out of this trading range. You must be ready to move your portfolio in-line with any serious move in either direction up or down. Although it is probably too early to think about profiting from the downside, we must be prepared. I have added the short list back into the Bulletin for this purpose.
What we have now is a range bound market with little conviction available either way for a break-out of the current range. Proceed with caution in either with trades in either direction (long or short) and keep some extra cash on hand for when the smoke clears.
Long Term Portfolio
The long term portfolio is here. This portfolio will be a $100K portfolio with 10% in each position. It will be a margin account; this means we will have the option to go on margin when and if we want to. The goal of this account is to find stocks that will increase at least 10 fold over a 1-3 year period.
Like our short term plays, there will be Alerts sent for long term trades. Or course, the intent is to keep these positions for a while, so long term portfolio Alerts will be sent much less often .The Alerts are mostly for the accountability of our Trade Record. However, the Alerts will also keep you informed as positions are bought and sold.
Since these are long term positions, the window of opportunity to enter a position is much longer – entering a position a few cents higher or lower will have little impact over the long term.
Separate Trading Accounts
It is highly recommended that you do not mix the long term trades with your short term trades. Open two separate accounts and separate the long term positions from the short term account. It is extremely difficult to trade long and short term out of the same account; I do not know anyone that can do it successfully. This is because you will be constantly looking at your short term positions and if your long term is mixed in, you will see every little pullback on your long positions as well. This will cause you to micro-manage your long positions. For example, you may panic sell if your long term stock should it fall 10% or more in the short term. The criteria for holding long term are much different from our short term trading rules.
OTC BB Watch List
- UNWR
- ADBL
- AZAA
- BRVO
- GASE (up 10% on Friday from Thursday's mention)
- IFUE
- GUSH
- KDMV
- USTT
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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