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Monday, May 10, 2004
Good evening friends,
Market Recap
Red across the board was the color of choice today in the market. The fear of interest rates rising quickly is the main trigger for this down turn. I mentioned last night that the key level of support for the Dow was the 200 SMA at 10,000. That support was shattered today and, unfortunately for people still long in this market, it closed below that level today.
The NASDAQ closed below 1900. The key support on this index was between 1890 and 1900, so with a close of 1896, this index is still holding up for now. The S&P 500 came within 2 points of touching its 200 SMA today and bounced (2 points is close enough). I was hoping to see the Dow bounce and stay above 10000; maybe it can snap back tomorrow. The market is over sold and due for a bounce, but if this is a real bear market, we all know markets can stay over sold for a long time.
I mentioned that markets always move ahead of the news and we are seeing that now. The fed has not raised rates yet, just talking like they will. We all know the rate will be increased sooner or later. By pricing in a rate hike or two (or three) already, it seems the market knows it as well.
What is interesting is that the rise in interest rates is due to the economy is moving along quite well. Because the markets move in advance, I would not be surprised to see a rally right after the first rate hike. I could be wrong but I am leaning towards covering our shorts the day before the Fed meets in June and taking some long positions. I believe they are selling the rumor now and will buy the news later - the exact opposite of what the average investor would do. The market likes to prove the majority wrong. We will have to see if this scenario plays out; it will be interesting for sure.
It is a good thing that we do not follow the crowd. We have known for some time that the markets were looking weak. You have probably noticed a major shift from long positions to short positions in our Bulletin. The Bulletin is now made up of about 65% short positions. We adjusted the Bulletin well before the major markets came crashing down, and we were well positioned and ready for the herd to take things our direction.
There are too many traders in the market who always seem to think the picture is rosier than it really is. Remember just the other day I said, “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.”? Folks, the charts do not lie. We knew that the market was turning bearish well in advance of it happening. We have been loading up on the short positions and moving away from the long positions.
The markets may be slightly oversold at this point, but if the sentiment is bearish and the charts are bearish, the market reaction is going to be bearish. This is another lesson for the non-believers in the crowd. Charts are everything when trading stocks. I have been there, done that, and I have probably made every mistake you and everyone else has made when they first started trading. One thing I have learned in my trading career is that charts are invaluable and I could never be an effective trader without them. When used right, they are gold.
Moving in Waves
A note to new subscribers: the market moves in waves that can last anywhere from weeks to months. Then a correction starts; that can last anywhere from weeks to months. Members that signed up for our service a year ago have seen the full power of charts and our trading system at work. If you just recently signed up for our service, unfortunately you arrived after the move has been going for sometime. Things will not look as good at the moment, because the market is going down and there is nothing you or I can do about it.
What we can do, however, is go with the trend. By this I mean if the market is going down then we will play the market short. We do not care which direction the market takes - as long as there is a clear direction. Flat markets or sideways markets are the worst type of market in my opinion. The market is now selling down hard and working off the prior move up, and this may be discouraging. However, I ask you to see the market for what it is - a chance to make money no matter which direction it goes. We are here to show you how technical analysis and sound trading methods will always keep you ahead.
After the correction, chart patterns will be fully developed. After weeks of basing and pattern building, stocks will begin to rise again and that is when the real big money is made. Down turns in the market are fantastic if you are on the right side of the trade. I hope that you will learn with us and be here for the start of the next big move. It would be a waste to bail now, only to come back after the next move has already started.
For now, I am not seeing any stocks that are set for big moves on the long side. There are some stocks holding up but nothing that would be a good risk reward ratio. At best we will see jockeying up and down with no real money to be made. Unfortunately to make the big money in stocks we have to sit and wait it out and have charts set up for the big advances we are looking for. Until this basing process happens, the only way to play this market is short. If you can not short, then cash is king.
OTC BB Watch List
- SPCK
As always, thank-you for your support past, present and future! Have a great night everyone; we will see you all Tomorrow evening.
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