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Thursday, May 27, 2004
Good evening friends,
Market Recap
It was a very nice rally today for the Dow, finishing up +95 points. The NASDAQ was up +8 points on almost average volume. The Dow and Russell are trapped between their respective 50 and 200 day moving averages. The S&P and NASDAQ are above their respective 50 and 200 SMAs, and that is very positive. The markets could very well spike up if the Dow and Russell can manage to close above there 50 SMAs. Hopefully that will come sometime next week (and if so, get your Thin Lizzy, Toy Story CD out and play that song “The Bulls are back in town”.)
Numbers, Numbers, Numbers
We continue to see more data this week. Today was the revised GDP numbers for the first quarter which came in slightly better than the initial reading, and slightly less than forecasted. Both oil and the unemployment numbers were only marginally down. The markets are still mixed as investors worry about interest rates, terrorist attacks, geopolitical events, and the economic numbers that are not meeting forecasts.
What does all of this mean to us? Very little. We still do not have a clear direction in the market, so I have been going long on the hot momentum stocks and shorting stocks I think will drop. The rise in fuel costs will still have an impact on the airline stocks. Interest rates are still likely to have an impact on banking and financial stocks. The charts continue to be the foundation we build our portfolios on.
Looking for Clarity
I was hoping for some clarity this week within the markets, but it does not look like that will happen. The NASDAQ is over bought and needs a rest soon. The Consumer Price Index (CPI) is due out on Friday. The CPI is an indicator of whether the price of basic goods and services is rising or falling. Consumers like to see prices falling, and they are more willing to spend if prices fall. The Fed uses the CPI to help gauge inflation. Higher readings reflect the potential of a rise in inflation.
The housing boom is starting to falter and gas prices have gone through the roof. Interestingly, the Fed typically either lower or freeze rates to stem off inflation. If there is fear of inflation, the Fed may keep rates lower for a bit longer. It will be an interesting way to wrap up our trading week.
Security Stocks Today
A note about today's security stock trades. Yes, we were caught in the sell off, but I would like to make three important points.
First, these are highly volatile stocks and we will see wide swings in them; 5 -10% swings a day is not uncommon. Tight stops on volatile stocks will cause you to be whipsawed.
Second, “if you can not stand the heat, do not get in the oven.” In other words, these stocks are hot, they have extremely low floats and they have tremendous daily swings which may dip below our 5% loss rule. You always have the option to sell without waiting for an alert from me if you feel the trade is not going in your favor.
Lastly, I am not at my computer for every minute of the trading day. I do take breaks, eat lunch, squeeze in a workout or go to an appointment, not always but from time to time. It is possible (although not often) that I may not be at my computer to issue a sell alert.
It is important to develop your own strategies for setting stop limits on trades, rather than relying entirely on our trade alerts.
I do not mean to offend anyone but this is a tough game and you can not make big gains without some risk. This is why I stress 5% in any one trade to minimize your overall risk. A 10% loss using 5% of your portfolio per trade is only 1/2 of a percentage point in your overall bottom line.
Have a wonderful holiday weekend everyone. See you Monday night.
Memorial Day
The market is closed on Monday so there will be no Bulletin Sunday night.
OTC BB Watch List
- None
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