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Sunday, April 25, 2004
Market Recap
Friday was a follow through rally on the NASDAQ that brought the index up another 16 points. The NASDAQ has moved quickly from 1970 to 2050 in just three trading days; a gain of 80 points on a rally with better-than-average volume. The MACD is crossing over on the chart, but the MACD is a lagging indicator. It normally signals “buy” after the rally has already started. The Slow Sto is still not over bought, so this rally may still have legs.
We head into the trading week with 12 open long positions and 3 open short positions. Most of our long positions are doing very well. We were stopped out on some short positions last week for minor losses as these rallies tend to cause weak stocks to rally back up to trend and resistance lines. The NASDAQ is above its 50 SMA, and when any stock or index is up above this level, it is wise to trade long (providing it is also above the 200 SMA).
I can not get bearish on this market as long as we remain above the 200 SMA. Now that we are above the 50 SMA, I have increased my long positions with a couple of more buys on Friday. Here is to another good week for the markets. As always, keep tight stops to preserve capital in case of the unexpected.
Stock to Note: FRCP
One stock I expect to make a move soon is FRCP. This is an OTC bb stock that we have on the Bulletin as a play on the war in Iraq. It has not moved as I thought in light of the all the hostilities going on. However, that may change this week. The company released news of a new contract after the bell on Friday. This news could send the stock up significantly tomorrow. I do not normally buy stocks based on news but since we already own it, a nice news release is always welcomed. I am expecting a big return from this trade with this news.
The Bounce Play
Lately some of our best trades have been catching stocks that are bouncing off support levels. Even stocks that are slipping back some can offer great opportunities to make money. These are great plays in a market that is flat such as the one we have seen for the past 10 weeks. The best candidates are strong stocks in an up trend that are pulling back or resting on decreased volume. Finding stocks that fit these patterns is a great opportunity to profit.
A stock bounces because it hits a level of support and buyers bring the stock back up from that level. The key, as always, is volume. Stocks will bounce when they are declining on low to average volume. If the volume is greater than average, there is a greater chance that the downward pressure will break through the support level and take the stock even lower (we want to stay away from those).
When looking for bounce plays, always consider volume and place a protective stop just below support. If the stock does not bounce, but rather breaks down through support, the protective stop will prevent getting stuck in the declining stock.
Bounce plays also work well when shorting stocks as they hit levels of resistance. That is why I talk about shorting into minor strength using limit orders. I would not short a stock going up on volume, but if the strength is on low volume then the stock can be shorted. As always, volume is the key; too much volume and you will see the stock break through resistance and head higher. A safer short play is a short into the minor strength and set a protective stop just above resistance.
Bounce plays are great opportunities, they can work out really well in side ways trending markets. The Bounce play is another tool available to us when momentum trading.
OTC BB Watch List
- GASE
- ADVR
- VROT
- IPYS
- FRCP (Bulletin stock with big news after the close Friday, should run on the news)
- IFUE
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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