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Wednesday, May 05, 2004
Market Recap
There is not much to talk about as far as market direction; the trend-less market continues to be the same old broken record. The market is on thin ice and ready to fall if buyers do not show up soon. Volume was low again, and it seems like there is nothing that can get this market in gear. We will have to wait for some economic news to be released tomorrow and see if that sparks some movement either way. We have both short positions and long positions so we are covered no matter which way the market turns. If the market rallies, we will stick to our 2% loss rule on our short positions. However, I do not think a rally is coming. Looking at the charts, they indicate we are headed down. We will know in time, so stand by. Remember, cash is king.
Sector Trading
I will be discussing various sectors within the market over the coming weeks and months, much like the commentaries on various indicators.
There are some important lessons to be learned when looking at market sectors and trading within those sectors. Before jumping right in, starting with a general overview would be most prudent.
Sectors of the market are like the various sections within a grocery store. Some sections maybe: the frozen foods aisle, baked goods, the cereals, and so on. The stock market has sections: the energy sector, consumer goods sector, steel sector, micro chips, and so on. In the grocery store, each section within the store has a variety of items on the shelf. Very few items on the shelf contain exactly the same ingredients or are priced exactly the same as its competitors.
Like the grocery store aisles, there is lots of competition within stock sectors. Each company within a sector produces a similar product but it is difficult to find two companies in a sector that sell the exact same product, and have the exact same financial strength, price point, etc. This is where it pays to know the sector and the players within the sector. A sector maybe very hot, but for some reason a few stocks within the sector may seem to lag behind. Most of the time, it is not because these laggards are yet to be discovered, believe me, we are always the last to find out about the next hot stock. They are lagging for some other reason; often there is a fundamental problem with those companies. This is where it pays to know the players.
If you can find the stock within a sector that has yet to heat up, there is potential to be a very big winner, but those are very rare. As I have said, the public will always be the last to know about the next MSFT. If you buy a stock in a hot sector simply because it is a part of the sector, you might have a winner. However, you also might have the one stock in the sector that will under perform its peers.
Sectors charts can be used to determine the general strength of the stocks in a sector. This can be taken a step further by using individual stock charts can be used to find the biggest winners in the group.
Remember, if we are long in the market, we want to be in the hottest sectors of the market and then the strongest stocks within those sectors. This is the leadership group and we want to be in the market leaders.
In contrast, if we are shorting stocks, we want to be in the weakest sectors (that is, the sectors showing a weak accumulation/distribution rating). Within that sector, we want the weakest stocks available to short.
These are just some basic rules to remember as we study the various sectors in the coming weeks.
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
- GTEL
- COPY
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