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Thursday, April 29, 2004
Market Recap
The market caved in today with another high volume sell-off, and the NASDAQ lost 1.6% on 2.4 billion shares. The Dow lost 0.7% on 1.9 billion shares. Some very intense selling took place today with declining volume swamping advancing volume by a large margin. If it had been a boxing match, they would have stopped it. Many charts have been damaged in this market, and some of our Bulletin stocks did not escape this chart damage. Today's plunge has wiped out nine of our Bulletin stocks, please take heed to the comments on the Bulletin and follow closely.
Short Term
The short term momentum remains negative although we are over sold and could bounce soon. This is a very tough market to call, but all may not be lost since the NASDAQ is sitting close to its 200 SMA support. The danger of a collapse through this level cannot be overlooked. I will revise the short list on the Bulletin this weekend in case the 200 SMA is breached. I still say it will hold and we will bounce, but we will be ready if it does not. We need to hedge our portfolios equally between long and short in order to position ourselves to prosper no matter which way the market breaks.
Sit Tight
Today's sharp sell off leaves very few stocks with charts worth looking at for trading. My advice is to sit tight with your cash on hand and be ready for a bounce off the 200 SMA (which will hopefully come tomorrow). If this support level fails, be sure to have your stops in place because it will be a serious technical breakdown that will send this market back into Bear status fast.
Subscriber Email
I would like to share an email from a subscriber regarding our timely market direction calls. Our service is not just about making money in a good market but also about protecting your capital when the market goes down. The subscriber's name has been removed, but we thank-you for the kind words.
“Dave & Joe,
I wanted to thank you both privately so as not to cause any (further!) grief to those still holding this one (SPSC). Dave's reminder about email spam combined with Joe's pointing out that an alert would work as well as a stop loss (not allowed on this BB stock) which addressed my concern about the spike top to an otherwise stable chart kept a very nice gain (25%) from turning into a nasty loss. Like someone else said, that's about 5 years worth of subscription. You guys ROCK!”
Long Term, Short Term or Both?
We have recently introduced our TWPD long term portfolio. Let's take a few minutes this evening to go over the long portfolio and discuss the differences between our Long Term and Short Term Portfolios. This should help clear up any confusion when you see an Alert for one portfolio or the other.
TWPD started off as a swing trading group. A swing trade is a trade that we move in and out of very quickly (a couple days to a few weeks). We are looking for stocks with charts that signal a potential for a significant move near term. We use technical analysis to find these stocks, and we rarely focus on the fundamentals of the company. With a very short time frame in mind, there is no need to consider anything about the state of the company. It does help on occasion to know when earnings are released, but aside from that, there is no need for fundamental research. We are only going to be in the stock for the quick advance and then exit.
With the addition of the long term portfolio there are now additional rules we need to consider. The 5% to 10% rule still applies. A 5% to 10% allocation to each position will provide a diversified portfolio. We can sustain greater fluctuations in the market because the risk spread across our portfolio. When looking at a long term prospect, we are using mid and long term indicators on the chart. A quick check of the short term indicators is always warranted, but it is not as important as the long term indicators.
In addition to the charts, since we are looking at a long term hold, it is also appropriate to know a little more about the company we are buying. We are never in a rush to get into a stock for the long term, we have plenty of time to locate the best charts and then dig deeper and find out about the company and the state of its business.
I should also point out that we are looking to hold these stocks for months rather than days. Just because we are looking to hold these for a while does not mean that we buy it and then forget it. We need to keep an eye on these charts as well. It is not quite as crucial to know what the chart looks like every day, but we will be looking at the long term positions at the end of each week or month to ensure the charts are still intact.
Currently we have two stocks in the long term portfolio. It takes time to locate the right stocks, and even more time still to research the company thoroughly. You can expect additional stocks in the coming weeks, but we do not expect the portfolio to fill up as quickly or as regularly as our short term portfolio.
***Please remember that you are responsible for your own investment decisions. I am presenting what I see are the best stocks for the timeframe (long or short term). It is up to the individual investor to do his/her own research and determine if the stock qualifies to be in their portfolio. Some wait for the Alerts to be issued, while others research stocks and make their decision ahead of any Alert.
The long term portfolio will allow you to do the proper research into the stock before you determine if you like it enough to buy it, or if you will pass on it. The goal of the long term portfolio is to find stocks that will net 1000% over the course of 1 to 3 years. In order for this to happen we must take risks. The stocks we buy for this portfolio will carry some risk, but you can not get the home run without swinging for the fences. GE or MSFT are stable companies with limited downside risk but they will not get us the 1000% returns we are looking for. This long term portfolio is for money you will not need for years to come and money that you can live without.
One Final Note
I cannot stress enough to keep these two accounts separate. Please do not try to trade both long and short term from the same account. It is almost impossible to do because each has different timelines and different philosophies. It also makes things easier at tax time. Ultimately, this is another decision that is left up to you. I choose to keep the two accounts separate.
As always, thank you for your support past, present and future! Have a great night everyone; we'll see you all Sunday evening.
OTC BB Watch List
None tonight
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