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Thursday, May 06, 2004
Market Recap
It was another disappointing day for the markets as the Dow fell another 69 points and the NASDAQ dropped 19. A positive U.S. employment outlook was released today, but it did not seem to get the buyers' attention. In past months, today's news would have rallied this market, but not this time.
The NASDAQ closed just a shade below its 200 SMA. It is disappointing for the majority of traders who would rather be in a bull market than a bear market. However, it is not disappointing if you know how to work the market to your advantage during these down times. Hopefully you are learning with our service that it does not matter which way the market goes. We can make money in a down market as well, and our short positions are proving that to be true each day. I honestly do not want to short stocks. I would much rather play the long side in a bull market, but if the bull is not going to cooperate, then we must choose to go the other way, at least for a little while. This way, we can make some cash while the bull takes a rest.
Does a Bear Short in the Woods?
If it looks like a bear, smells like a bear, and acts like a bear, is it a bull? I think not. It must be a bear.
We are definitely seeing a lot of negativity in the stock markets these days. Stocks have been heading lower, and it has the potential to get much worse. This is when the uneducated investor is going to start “bargain” hunting. Many people are thinking stock prices have been discounted. Remember, those stocks are getting cheaper for a reason, the charts do not lie. What seems very cheap now is going to get outrageously cheaper as these stocks drop even lower. Do not get suckered into the theory that stocks go “on sale”. Stocks are only worth what someone is willing to pay for them. The truth is: stocks are literally worth nothing if there are no buyers.
The Wall Street Analysts
What we will likely start to see from some Wall Street analysts is their version of a band aid. Notice how they were hyping a lot of stocks as they rallied? They will also hype on the way down to a certain point. Since many people consider the analysts to be the most knowledgeable people around (LOL), they will buy into what they are being told. Once again, the herd is being set up to buy when they should be selling.
These analysts will start reiterating stocks. They will tell you that the stock is trading at a substantial discount, and that you should be picking up shares at these lower prices. What they are not telling you is that they are hyping the stocks that their firms or investment bankers hold in their own portfolios…or even selling their own shares as they tell the public what a great bargain they are. Some stocks are likely to even be upgraded as they plunge. The reasoning they give you will be based on the company's fundamentals.
Granted, I am sure there might be one or two stocks out there with incredible fundamentals that will get beaten up enough to be a decent buy (for example, hopefully TPPP), but you will be holding those stocks for a very long time if the chart breaks down. It will take a long time for these charts to repair. If you do not believe this, look at some of the past Bulletin stocks that we sold before they broke down. They still have not returned to an uptrend. Look at a couple of our current stocks that we regrettably still hold like SNTK and TPPP. These charts broke down and do not look like they are going anywhere for a long time.
How come we never hear about analyst upgrades when the market or stock is at the bottom? Are you kidding? This is when they (smart money) are accumulating, and they do not want you buying shares with them – they will have none of that.
Let's take NT as an example. I remember NT went from a high of $80.00 in the bubble years down to a low of .43 without a stock split. This low was back in 2002. The analysts were still upgrading the stock to strong buy at $80 in 2000. As fell and I heard people say “It's at $30 now; it's on sale so I'm buying more”. Not one analyst upgraded NT when it was under $1.00. Instead, if you watched the talking heads on TV, they were talking bankruptcy for NT.
Of course this was at the time when companies were filing for chapter 7 bankruptcies right and left. The fear was there and they knew it, so they played the public to scare them out of their shares while they accumulated them. Let's be real, NT is one of the biggest companies in Canada so what are the odds of bankruptcy? Slim to none in my opinion.
A cousin of mine bought NT at $80 in her IRA. Needless to say she lost a lot of money when she sold under $2.00 afraid of the bankruptcy rumors she heard “on TV”. In January of this year, NT traded above $8.00. Just after an earnings release, analysts were upgrading the stock again to strong buy when it was over $7.00. Again, it was up 1800% from its low of .43 when they started to upgrade it. Why not upgrade before the big gain or before earnings are released? It is their job to know what a company is going to release for earnings. If they are doing their job, earnings would never be a surprise. When NT was at .43, the fundamentals of the company were the same as they are now. What changed to make it go up to $8.00 in January? NT trades today below $4.00, down 50% four months after the analyst upgrade. See the pattern? The system is set up for you to fail and for the smart money on Wall Street to take your money from you. What I have described above is exactly how they do it, and it is perfectly legal. Know how the game is played and you will not fall prey to these tricks.
Charts are your Police
The charts are your police; you can not get taken if you follow them. You can stop a talking head in their tracks if you know what to look for in the chart. Sure, sometimes you will lose, because charts are not perfect. However, I would rather put my faith in a chart then some stranger blowing smoke on TV about a stock that I can easily research myself. Never bet against the charts.
EKG Revisited
In a previous Commentary, I said the charts were like an EKG. You can read them the same way a doctor reads the EKG printout. We can tell the health of a stock based on the chart and we can tell the health of the market based on its chart. I am my own stock doctor and you can be yours. I read the charts (the EKG) and I can tell if the stock is healthy enough to buy. I do not need advice from a talking head on TV – it is just bad medicine. You must take care of yourself, if you don't who will? The guy on TV could care less about you.
Looking Ahead
If the NASDAQ closes the week below its 200 SMA, I will be removing many stocks from our long watch list, and I will start updating the short list daily and the long list once a week. It will be just the opposite of what I do now (longs daily and shorts once a week). No new stocks tonight, but I expect to add more shorts to our list this weekend. There will be full updates on all stocks on the short list Sunday. There will also be some charts to update you on where we stand on some of these positions. .
As always, thank-you for your support past, present and future! Have a great night everyone; we will see you all Sunday evening.
OTC BB Watch List
- None tonight
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