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Monday, May 24, 2004
Good evening friends,
Market Recap
The futures were up big again this morning, and the market gapped up slightly as they raced to their highs of the day in the first 30 minutes of trading. The selling began later in the day, and the markets closed lower then they opened. Sound familiar? This has been the “theme” or the “trading pattern” for the last couple of weeks. Classic bear market action at its best, and it is trapping many investors/traders who think this is the gap up that will start the big rally. They continue to be disappointed on a daily basis.
The NASDAQ finished green today, but it is the same old story, less than average volume every time there is an up day. At this point, the best thing to do is sit back, accumulate your cash, and not trade at all. The market is oversold and trying to work off this condition but there is no volume to speak of to push the markets higher, so the sideways trading continues.
Short Positions
Most of our short positions are either (a) not moving in our favor, or (b) moving just fractionally in our favor. This suggests that this market is too oversold to move lower, yet we do not want to be long in this market environment either. In light of the heavy economic data coming out this week, some shorts will probably be covered soon. The market does not look healthy, but with good news the market could get a big heavy volume day to the upside. At this point with all the weak volume we have seen over the last few weeks, all it will take is one big volume day to get the Dow up 200 points and the NASDAQ up 75 and we do not want to be caught in a rally like that.
Cash is King
Cash is king until we can see a huge up day on super heavy volume. I am not sure which way we are headed. The charts say down, but the market is over sold. I do know that this cannot continue much longer. The market will need to commit one way or the other soon. When it does, you will see massive volume. This week's economic numbers could be the catalyst that provides us that big volume day and get things moving. If it is to the downside, this market will be on the ropes for a long time. Hopefully it will be up. Then we can cover our shorts and get on with making some real cash on the long side.
Remember, the big money is made on the long side. Should we get a big volume rally that is our signal to cover shorts. I am starting to see a few more potential long trades on my scans again so this could be a sign that things might be turning around.
A Key Week for Investing
We will watch our shorts very closely this week. With Saudi Arabia set to potentially pump more oil into the economy, we saw the effects on the market this morning. We are also looking at a number of retailers releasing their earnings this week. If the numbers are looking good, we could see a broad based rally. On top of all of that, we have several major economic reports being released this week.
Reports on consumer confidence, the housing sector, durable goods orders, 1st Quarter GDP growth revisions, new unemployment claims, personal income and spending numbers, and finally consumer sentiment will be released. All of this will spell one very hectic week in the markets. We will absolutely need to see the buyers come in with heavy volume otherwise any rally will be short lived.
With so many economic reports due out this week, we will discuss some of these reports. The Consumer Confidence is due out on Tuesday, let's cover that one first.
Consumer Confidence
The consumer confidence numbers are gathered via a survey, which is conducted monthly by the University of Michigan. As with any other survey, the statistical data that comes from these surveys is not completely accurate and only represents a random number of people. The survey is roughly 50, in-depth questions, and is taken via a telephone survey. According to the University, they use a minimum of 500 surveys to get their estimate. 500 households are used to represent the collective sentiment of the entire United States.
If confidence is seen to be rising, it is a signal that consumers are feeling better about the direction of the economy and are more likely to make larger purchases. Conversely, if it is falling, that is a signal that consumers are more likely to hold off on large purchases. Understandably, the market takes a very hard look at this data. The investors in the market feel that happy consumers mean larger corporate profits.
We need to stick to our path and react to the reaction, and not to the news itself. 500 people across the US, who happened to have time to take a survey over the phone, and we are supposed to rely on that to help guide our investing? I think I will stick with the charts. :o)
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
- SPHC (up over 30% today from last nights mention)
- RDVN
- VROT (massive volume lately, something's up)
Joke of the Week
The real definition of a Stock Split -- When your ex-wife and her lawyer split your assets equally between themselves.
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