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Monday, June 07, 2004
Good evening friends,
Market Recap
There was an explosive rally in the market today with the Dow, S&P, and NASDAQ all closing at their highs of the day. The Dow was up nearly +150 points, and it is near its resistance level of 10,400. The NASDAQ was up +42 points, and it is now at the resistance level I spoke of last week at 2020. Both the Dow and the NASDAQ are sitting up against resistance. I have a chart of the Dow and NASDAQ tonight so you can see where these resistance levels are and where we may see some profit taking. What we need tomorrow is a follow through rally with a close above these levels and we might be back in business again.
Pre-market Alert Re-visited
Our Friday pre-market Alert turned out to be amazingly accurate as both the Friday afternoon selling from the highs of the morning rally and the Monday buying today that took place unfolded as predicted:
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Friday June, 4, 2004 8:50 AM
[Alert] Great economic numbers out this morning and should lead this market higher. We have been loading up on the long positions the last couple of weeks to position ourselves for a move up out of this trading range and maybe this is the number that will take us up. Remember, not to chase stocks at the open, if you are not long yet, you must be patient and wait for pullbacks. We could see some selling near the close because people may not want to be long for the weekend because of the threats of terrorism. Monday should see some nice buying though”.
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Looking Ahead
A close on the high usually means follow through to the upside but with both the Dow and the NASDAQ up against resistance, we will need a gap up and some heavy buying for this move to continue. Volume was less than average again today on this rally so that to me raises the red flag in the back of my mind. The S&P chart looks to be in the best shape of the three.
Our Bulletin stocks did very well today. Some of the big winners today were: SONE, ALDA, ATEA, IPIX, ATRM, CNET, EAGL, and TINY. Let's not forget last night's OTC BB pick SEVI, up 32% today as well.
Balancing Act
Everyone knows by now that we do not take positions in stocks that have low average daily volume. You can not get into the stock where you want, and it is nearly impossible to exit the stock without taking a hit. TPPP is an example of not being able to get out of our trade. If the volume is not there, it is just not worth trying to trade the stock.
Everyone should also know that we buy the breakouts only when the volume is present. We have seen many times before when a stock hit one of our buy points, it failed because of the lack of volume accompanying the breakout. The reason behind the failure it is very simple, the lack of volume is saying there are not enough traders that believe the run is for real, so they lay off. We discussed volume in the commentary ‘Pump up the Volume' on March 8th. If you do not recall that commentary, please review for a quick refresher.
On Balance Volume (OBV)
Continuing with our indicator series, let's look at a volume based indicator On Balance Volume and see what that can tell us beyond a simple volume check. It is perhaps the most popular indicator when it comes to measuring the in/out flows in volume.
I have talked many times before about volume confirmation within a move. Usually I will wait for confirmation in a stock before taking a position. This is how OBV works. It is a daily, running tally of volume within a stock. It is measured by a line chart and (normally) on positive days it goes up, on negative days it goes down, and if the stock closes even, OBV will be unchanged.
Joe Granville (the developer of the OBV indicator) said it best, “volume is the steam that makes the choo-choo go”. If the OBV is making new highs, we know that the bulls are out in force. By following the movement in the price and the OBV together, we can get confirmation of a move within a stock, either positive or negative.
The indicator itself is a leading indicator. We have looked at a number of indicators that are trailing, or lagging indicators. This one helps us to find the path ahead of time and be out in front of the pack.
While we use this indicator as a confirmation signal, we can also look for divergence within the indicator as the signal for a reversal. If a stock is rallying a bit but we see the OBV dropping or staying flat during the rally, we know that the rally is getting ready to stall or fizzle fast. If we see a stock declining or pulling back, but the OBV is rising, then we have a good idea before anyone else not following this indicator that the pullback is coming to an end and a reversal is near.
Not all indicators work together but you can not rely on just one or two either. Trying to find the ones the blend together and work well is a delicate balance but On Balance Volume should definitely be part of your balancing act.
As always, thank-you for your support past, present and future! Have a great night everyone; we will see you all tomorrow evening.
Reminder: No Bulletin on Thursday Night
The markets will be closed on Friday, June 11 to pay respects to former President Ronald Reagan. Because the market is closed on Friday, there will be no Bulletin Thursday evening.
OTC BB Watch List
- SEVI: up over 20% today on 12X ave. vol. from last night's list
- AANI: it did not move today but still looks like it can soon
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