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Tuesday, April 27, 2004
Market Recap
The markets came roaring out of the gate this morning but drifted down for most of the day. In the last two hours, the market sold off on the news of the overseas turmoil. The short term momentum remains positive. However, today's selling came on above average volume.
A few weeks ago we had a chart of the NASDAQ with a potential reverse head and shoulders bottom. This formation is still intact as you will see a tonight's chart. The resistance line of this pattern is the neck line at 2070. If we can get above this level, it would be a very bullish sign and that would complete the chart pattern. If a breakout comes later this week it should signal the start of a new advance.
The good news is that we have had 3 months of side ways action in the market. Anytime there is a market with a prolonged period without a trend, there is often a big move out of the base. My guess is that the move will be upward. The NASDAQ has not breached the 200 SMA in this sideways action. This is a strong indication that stock prices will go up sometime in the future.
The longer the sideways trending action, the greater the potential move could be once the breakout (or break down) occurs. With this backing and filling we have had over the last 3 months, I am a firm believer that a big advance is coming sometime this year and my guess is that it will occur before the election.
Sand and Stone
I recently read a story called ‘Sand and Stone'. It is about two friends walking through the desert. They argue, and one friend slaps the other. The friend who was slapped writes the transgression in the sand. Later that day, the friend who was slapped is dying. His life is saved by the friend who had slapped him earlier in the day. The friend who was saved etches this deed in stone.
The moral of that story is to write the bad things in sand, then let the winds of time erase the deed. Good deeds are etched stone, so the winds cannot erase them. They are there for all time.
That is a great way to think about life in general. We all have had bad things done to us that we never forget. We have also had good deeds done for us that we forget easily. It is often human nature to remember the bad things and forget the good things. We tend to not properly recognize the good done for us by others.
What does this have to do with our trading? Maybe you sold earlier than you should have because you got spooked. Or maybe you bought when you should not have. Afterwards, you let the emotion of that trade play over and over in your mind. It affects future trades because the memory is still there. You dwell on the negative and you might find yourself chasing other stocks in an effort to get even. In the end, you wind up with less money and even hotter emotions.
People do not seem to remember the big winning trades they may have made. Those trades are quickly forgotten. I always find it interesting when someone emails me an angry note about a particular position being out of the money, but they fail to remember all the winning stocks we have had. There have recently been several big winners, yet those wins are forgotten in a heartbeat.
There is the “what have you done for me lately” mentality. It is the same in the corporate world, your boss does not care what you did at your last job, what's important is “what can you do for us right now”.
The emotional trades are what we need to write in the sand. If you make a bad trade, it is important to get over it and move on. Write those trades in the sand then continue on your journey. Write the big winning trades in stone so you will always remember what you did correctly. Since we learn from every trade, good and bad, you should write the bad trades down also, but write them in the sand. After many lessons learned, those old habits will soon be blown away and you will never see them again.
As always, thank-you for your support past, present and future! Have a great night everyone; we will see you all Tomorrow evening.
OTC BB Watch List
- ICRA (Nice 10% move today from yesterday's Watch List)
- VTSI
- IFUE
- DNYY
- PSED
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