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Wednesday, May 12, 2004
Good evening friends,
Market Recap
Today was a remarkable comeback for the indices after being down significantly for most of the day. A powerful snap back rally in the final hour of trading caught shorts off guard, including me. I was not expecting this strong close, and it is a mystery why it happened. I managed to cover some shorts in the last 30 minutes. Our remaining open short positions still look to be in good shape but with this strong close, I expect more follow through to the upside tomorrow. The follow through tomorrow should be on high volume if this rally is for real. If volume does not kick in, then there will not be enough steam to push the NASDAQ back above its 200 SMA. A close above the 200 might give us a signal to cover our shorts but it is too early to tell - so stand by.
Yesterday's rally was nothing more than a fleecing of the less fortunate members of the trading community who do not know how to trade the market like the professional trader. I mentioned in last night's Commentary that I was not concerned about the mini rally yesterday. The volume on the rally said it all and those people who bought the head fake paid dearly for it today when the Dow dropped another 150 points and the NASDAQ fell 50 more points at one point today. It fell just enough to wipe out a few more people who manage to sell the bottom of every sell off.
Once they were out, the market reversed and the buying began. Volume was weak for today's sell off and I was concerned mid day about its strength. This weak volume should have been a hint that a snap back rally could come at any time. Coupled with some blow hard on BSNBC commenting on how the market was ready for a violent reversal, this all added up to a “violent reversal”.
This is a great example of how the media can influence the market. I noticed the volume was picking up in the last hour so I started to cover some shorts at that point. This powerful rally at the close got my attention. Even though the charts are still damaged, we can not ignore the 175 point reversal in the Dow today with a close at the high of the day above its 200 SMA. Even though the NASDAQ had a nice rally into the close, it still finished down for the day and remains under its 200 SMA.
Reviewing our Bulletin stocks, I still that see most of our open short position stock charts are still in good shape. No need to panic cover with charts in this kind of technical shape.
About Shorting
I have received many emails over the past week from members who have said they would have never known about shorting stocks if it was not for our service. This is no surprise; many amateur investors do not know that you can make money when the market goes down. Wall Street does not want you to know about shorting, and you usually do not learn how to short until you have suffered through market down turns.
I have been there and lost a lot of money when I first stated trading. If you did not know how to short stocks before joining us, do not feel bad, we have all been there. What is important is that you are here and you are learning how to profit no matter what the market direction is.
Our Portfolio
We currently have 17 open short positions, and we are now up 19% for the year while the NASDAQ is down 5%, a difference of 24%. Most of those gains came in the four month sideways market we had from late January until this recent breach of support. It was tough to trade a flat market and our trade record shows it.
Looking Ahead
I thought direction had been decided but after today's strong close, I am not so sure. Charts are still in bad shape and will need weeks to recover so we could see some more volatility before the market decides direction. We are positioned for a down move, and if we are on the right side of the market, our gains should accelerate as the market moves down. Once we find a bottom, we will cover our shorts and go long and ride this market back up as far as it wants to go. Playing both sides of the market and going with the trend is how you substantially outperform the average investor.
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
- None
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