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Sunday, May 09, 2004
Good evening friends,
Happy Mother's day to all our TWPD moms - I hope you all had a wonderful day.
Market Recap
The markets closed down strong on Friday with the Dow tumbling 123 points and closing at the low of the day. The first time the NASDAQ touched its 200 SMA I mentioned that the Dow was still nearly 400 points above its 200 SMA. Now with this big drop in the Dow on Friday, its 200 SMA is only 117 points below Friday's close. This leads me to believe this index will be visiting its 200 SMA soon (tonight that stands at 10,000).
I suspect the Dow will hold the 200 as support on the first test. The NASDAQ is another story. It closed at the low of the day, well below its 200 SMA. Next support I see for this index is between 1890 and 1900. It is not far away from that now, so maybe one more heavy down day and we could see a bounce.
I have been preparing us for this down turn in the markets by reiterating my stance that cash is king. I have also been shorting a lot of stocks in this down trend. I know many members cannot short stocks, but hopefully they will be able to make the proper arrangements with their brokers to make this possible.
With the high/low list increasingly bearish, we may be in short term bear mode for a little while. The NYSE and the NASDAQ combined for 222, 52 week lows on Friday compared to only 47, 52 week highs between the two exchanges. This is a decisively bearish sign and shorting stocks in the short term looks good.
Reach for the Life Jackets
Going against the trend of the stock market is like swimming against the tide or paddling a boat upstream against the current; it is not an easy task. The stronger the current, the harder you will need to work to achieve your goal, and the effort you will have to put forth may not be worth the potential reward. You might be able to see a little progress at the beginning, but in the end, I can almost guarantee you will be further back than where you started.
In regards to our market direction, we have been in some very turbulent waters. We have been in a flat market (trading sideways) for over 4 months now. Over the course of the last 4 months, we have witnessed the markets trade positively for a couple weeks, then negatively for a couple weeks. It has been up-and-down, back-and-forth… it does not want to make up its mind, resulting in the choppy side ways action we have seen.
The market also has some geopolitical issues to deal with along with interest rate fears. Strong earnings are fighting a losing battle with talk of cautionary future outlooks. This makes for one very rough sea to navigate.
We have been ‘treading water' in recent weeks, waiting to determine which way the market will turn. The NASDAQ closed below its 200 SMA for the second time in the last six trading days. To me it is clear what the direction is now, at least for the short term.
There has been quite a lot of negativity in the marketplace, and we do not want to be bullish in a bearish market. That is like trying to swim upstream and we just can not do that. If you swim against the current, your portfolio will be swept away over time. The advantage over fellow traders is the charts we use as our life preservers. Stick with our life preservers and we will be out in front, riding the wave that forms behind us as the smart money moves the market in either direction. We will go with the flow, either shorting stocks in down trends or going long in stocks with up trends. Our charts will keep us afloat, while many traders start going underwater. If we stick to the charts and buy strong charts (or short the weak ones), we will keep our heads above water.
I have updated all the shorts on our Bulletin, and I have included some charts of these stocks as well. As promised last week, since the NASDAQ has closed below its 200 SMA, I will be updating the short list each night instead of once a week. I will now turn my attention to the short list on the Bulletin and make that our priority list until the market can manage to reverse and head up.
The long list will now be updated only once a week until I feel the bull has returned and we should be long again. I hope most of you will set up your accounts for shorting stocks. For now, it is the only way to make money. (I will emphasis “for now” because this down turn may not last). If you can not short stocks then you should be 100% cash, waiting on the side lines until the trend changes.
Looking Forward
The market is over sold and should bounce soon. One more day of down side action should result in a decent bounce. I am hoping the Dow can have another hard sell day of over 100 points to get it down to its 200 SMA. We should see a nice bounce in all indices when this level is hit. If you are short and can not stand the heat of a pop in the market, then you should have tight stops and cover those positions on the first sign of a rally.
Right now, the NASDAQ is the only one if the 3 big indexes that is below its 200 SMA. This is still a Bull market overall until the other two major indices (S&P 500 and Dow) fall below their 200 SMAs. When all three indexes are below this level, I will turn bearish, but for now we will assume there will be a bounce soon. Our short positions are looking good at the moment so we will stay with them until the trend changes.
As always, thank you for your support past, present and future! Have a great night everyone; we'll see you all Tomorrow evening.
OTC BB Watch List
- None
Joke of the Week
The Stockbroker's creed: An investor is a client until they become broke.
Reminder: Set your pizza menu to the short list instead of long and make this your primary list because comments on the long stocks will not be updated daily. Comments for shorts will be updated daily instead until the trend in the market reverses.
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