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Wednesday, May 26, 2004
Good evening friends,
Market Recap
The market today may have seemed like a non event, but at least for the NASDAQ, good things are happening behind the scenes. The Dow closed in the red and the chart does not look good, however, it still remains above its 200 SMA. The S&P has had five solid up days, and it met resistance today at its 50 SMA but managed to close near the high of the day (HOD).
The NASDAQ closed up 11 points. That may not seem like much to the average investor when they read the paper tonight but it is very significant for us. This is significant because it closed above its 50 SMA at the high of the day - this is very positive. If I were to try and find a negative about this close it would be that the volume was slightly below average. I really want to believe in this rally, but the volume has to kick in or we will fall back below the 50 and get caught up in another trading range.
Quiet Movers
More good news behind the scenes is that there are plenty of small cap stocks moving up within the NASDAQ that do not weigh as much in the index and are almost unnoticed. In other words, these small caps can move up a lot without the NASDAQ moving up much. Security stocks were one of these groups moving up today, and they were flying high. We were able to get in on the action with a couple of good long plays early in the day. With the recent terrorists threats made on the United States, these stocks should run for a while. I hope you were able to get in on some of these after the pre-market alert this morning.
With security stocks going up, the hotel and airlines stocks should start to go down. I shorted UAIR today above 3.00. This stock showed up last night on my radar as being vulnerable for a decline because of the extreme over bought condition. It was quickly added it to our short list.
Clear and Present Danger
I am not talking about the Harrison Ford movie; I am referring to some of the comments made by John Ashcroft earlier today. The terror threat seems to be on the rise in the U.S., and just the mere threat of violence had a major impact on security stocks today. We saw a number of stocks start running in pre-market based on this threat. I mentioned this already, but the security sector is likely to be a very hot sector this summer. The Olympics will be held in Greece, and there is now an increased threat of an attack on U.S. soil.
Weighing In On the Market
The threat of violence is also affecting the market. We did not see a true continuation of yesterday's rally, and the markets traded in a rather tight range all day.
In addition to the threat of terror, there was a major drop in the new housing numbers. Yesterday, a very minor increase in the sale of existing homes was announced. Today, we are seeing a huge drop in new construction. Interest rate fears are clearly gripping the real estate market. We may have to look at the housing sector for some short opportunities as a hedge against our long plays. The banking sector will also take a hit as interest rates rise, so we may need to look there for some short positions as well.
Durable goods orders also dropped more than expected. The durable goods numbers may be feeling the interest rate pinch as well. Durable goods are typically larger purchases that would be major purchases for a household. Durable goods are defined by the government as those goods that are meant to last more than three years. If people feel that the economy is not doing well, or that interest rates are high, big purchases are usually put off.
Market Outlook
Given all the tension in the market over terrorism and the less than great numbers released today, I am actually a bit surprised at how well the markets held up today. We have been covering more and more shorts recently, in anticipation of a bull market. If this type of news does not spook the markets into a sell off, it might be getting time to start looking for more long positions. We took a few today and will continue to look for opportunities on the long side.
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
The real definition of a Stock Split -- When your ex-wife and her lawyer split your assets equally between themselves.
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