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Monday, April 19, 2004
Market Recap
The NASDAQ is playing ping-pong, bouncing back and forth, and trying to whipsaw the weak hands right out of the market. A nice little bounce today up 25 points off that right shoulder I showed you in last night's chart of the NASDAQ. At that time, I also stated that we could get a nice bounce off the bottom of the right shoulder. If this right shoulder support broke, then we could have fallen big on our way back to re-visit the 200 SMA at 1920.
However, we did get the bounce and the good news is we are back above the 50 SMA with today's close. With earnings out this week from a couple of big bellwethers, I think the NASDAQ can make a nice move - providing the numbers are good. I like this close above the 50 today with earnings around the corner.
I opened some short and long positions today. These short positions were a hedge in case the NASDAQ fell off the right shoulder, so keep tight stops on these positions. Remember, the 2% loss rule on shorts. I cannot get bearish on the market until we are below the 200 SMA, so until then, any short positions are only temporary and have a 10% gain target.
Interest Rates and Releasing Earnings
Interest rates have been in the news lately. It seems like Mr. Greenspan may be getting set to raise short term rates. We saw some positive economic news last week, with strong retail sales numbers being released and news on inflation. This could be a pivotal week for the market with some big names releasing earnings. MSFT, AMZN, UPS, F, EBAY, and TASR are scheduled to release earnings. We will need to be watching intently to see how their earnings reports go, as well as the forecasts they provide.
So why do the rates matter? Interest rates dictate the cost of borrowing. As the interest rates dropped, it helped to spur consumers and businesses into buying. As the cost to carry a loan became more affordable, it added fuel to the buying frenzy. We saw some sectors of the market have incredible runs on these low interest rates. Housing was one of the sectors that benefited from the decline. If those rates start to increase, people will begin to scale back on major purchases that require loans. This could have a negative impact on those sectors.
Beyond the obvious factors like heavier cost to carry a loan for a home purchase, there will be some additional ramifications. Business spending may scale back slightly, because businesses count on low borrowing rates to fuel growth. Small cap stocks need lower rates since they borrow cash to fund their growth. Companies that are on shaky financial ground (lots of debt on the balance sheet) will suffer the most with an increase in rates.
If the economy is moving too quickly, the biggest fear is rampant inflation. The Fed will react to that fear by slowing the pace of growth by raising rates. The professionals out there are leading the herd into selling now on the fear of rate increases. We saw some of that just last week. We will continue to do our buying on strong chart patterns as they sell off on unfounded fears.
It was a very good day for our OTC BB players as 4 of the 5 stocks mentioned last night were up on better than average volume and 3 had double digit percentage gains today.
OTC BB Watch List
- ADBL (up 10% today breaking out on 5X volume)
- AZAA (up 15% today on 8X average volume)
- BRVO (up 13% on 3X average volume)
- GASE (up another 6%today after a 10% jump on Friday)
- SRFDF
- BKYI
- HIET
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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