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Tuesday, May 18, 2004
Good evening friends,
Market Recap: Volume, Volume, Volume
The markets rallied today, but where was the volume? The Dow rallied up this morning hitting the high of the day just after noon. From then on it virtually stood still. The NASDAQ was +21 points today as well but the volume was 1.4 billion shares, well below its 1.7 B daily average. The Dow had volume of less then 2 billion shares, far less than its average of over 3 billion shares per session.
This lack of volume is a clear signal that the rally today (if you want to call it that) was weak at best and cannot be depended on as a buy signal. The market is over sold and is due for a bounce so some short positions should probably be cover. But when I look at the charts of our short positions, I say to myself, “why should I cover these positions?” There is just no reason to do so at this time. Not only do the charts look terrible but the volume today confirms my stance to stay with the shorts for now.
Alan Greenspan Re-nominated
President Bush announced today that Mr. Greenspoon will be around for another term. This had no effect on the markets at all. (The only buying after the announcement was triggered at the local drug stores where sales of No Doze skyrocketed shortly after the announcement!) You would think Greenspark would be worth at least 20 points on the Dow but that was not the case, the market was up when the announcement was made and did not budge for the rest of the day.
The Art of the Chart
Some say that chart reading is a science and other say it is more of an art. I say it is a little of both.
The science of chart reading comes from the hard structured world of mathematics. Since charts are comprised of data points, you can apply mathematical probabilities and come up with indicators. Many of the famous indicators that we use today were developed by mathematicians or financiers with a strong mathematical inclination. Trend lines, indicators, Fibonacci Numbers, targeted buy points, and projected sell points all come from the science of chart reading.
But chart reading is very much an art form; it is not something to rush through. There is simplistic beauty in the charts, when you fully understand what you are looking at. Most people will look at a chart and see nothing but a bunch of lines. People tend to lose focus because they see too much data to interpret.
If our goal is to become a doctor of chartology, we must first learn how to dissect the chart, break it down to its basics, and understand how it is put together. Only then can you build it back up and understand the chart as a whole. The series of commentary on indicators are the first steps into breaking down the charts. You must learn the indicators from the scientific point of view before you can apply them to the artistic view of the chart, only then will you fully appreciate the beauty of the chart.
When you study a chart, make a buy decision, and the chart unfolds as you predicted, you are on board for a great ride (and we have had our share of those). I guarantee that one trade will have you hooked on charts. All it takes is for you to hit your first 100% or 200% winner by trading the chart and you will never go back to any other way of investing or trading.
You never really can tell just how far a stock is going to go; most will continue to run past your price projections. When you find a stock that goes beyond your expectations and you found it using chart analysis, I know you will strive to become a technician as opposed to a fundamentalist.
Believe me, I have been there. I used to be fundamentalist, trading stocks with low P/E's and got nowhere fast. Those P/E's always seemed to get lower after I bought. Then I found out how much money I could make by studying a stock chart of a company rather than a company's fundamentals.
Compare the gains of a chartist to the gains of a fundamental investor and I can almost guarantee, if the chartist knows what he is doing, his gains will blow away the fundamental investor hands down.
As we continue with the series on indicators, from time to time I will step back and discuss one of our actual trades in a bit more detail. We will walk through the chart and outline how we took some of the indicators and applied them to one of our actual trades. We will do this on trades that went well and also on stocks that we sold just before they broke down. In the case of break downs, we can discuss the sell signals in the chart that indicated it was headed lower. By critiquing our past trades, we can get a better picture from the artistic side of the chart.
Looking Ahead
Charts are still broken, and in this market, I would not consider buying any new stocks at this time. This is the reason new stocks new stocks have not been added to our long watch list. Our short list is lengthy, and we have 24 open short trades. This is on the verge of too many open positions in an oversold market, but the charts still look good so we will not cover just yet. I will not add any new shorts to our list until we can cover a few of our existing positions or until I find an absolutely must have loser to short.
Remember, shorting stocks is not the preferred way to make money in the stock market. It is a nice way to make a few extra bucks while markets head lower but remember, we can only make 20, 30 or 50% on a good short trade. We will not make 100% unless the stock goes to zero, and those chances are unlikely. Trading long is where the real money is made but only when the right opportunities arise. Now is not the time to trade long. When the time is right a 20%, 30% or 50% gain will seem like fractional gains compared to the 100%, 200%, or even 300% gains we will make on a good long position. For those of you new to the service, check the trade record and see that we have made these big percentage gains before and we will again but only on the long side and only when the time is right.
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
Joke of the Week
There are primarily 3 different types of investors who post on Yahoo message boards.
1) Those who don't know anything
2) Those who don't know much
3) Those who don't know they don't know
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