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Tuesday, June 29, 2004
Good evening friends,
Market Recap
It was a decent day in the markets with the Dow up +56 points and the NASDAQ tacking on +15 points. Not a bad day considering the market is on hold awaiting the Fed decision on interest rates tomorrow. It should be a wild ride tomorrow with the Fed announcement coinciding with the last day of the trading quarter. It could be a very volatile day tomorrow so be fore warned and try not to get whipsawed out of your positions.
In my opinion, tomorrow's trading will be for amateurs. They will react to the Fed decision immediately. The smart money will react to their reaction. My guess is that the real reaction will come on Thursday. By waiting a day, the smart investor will have time to digest the news rather than trading on the emotion of the decision. That is when the seasoned investors and traders will make their informed, unemotional decision about their investments.
New Quarter
A new quarter starts this week, and companies will start releasing their earnings reports for the second quarter. YHOO will be the first big tech stock to announce earnings next week. YHOO and EBAY are the leaders in the internet sector, and I expect both to have very good earnings. If you look at the GIN chart from yesterday's commentary, you will see this Index is breaking out. This action is a leading indicator that earnings should be good for this sector, and as always, the market seems to move ahead of the news. If YHOO's earnings are good, it should do wonders for stocks like MAMA, ASKJ, SINA, NTES, AKAM, and AMZN (just to name a few).
Chart Critique: ALTI
ALTI is one of our bigger winners this year. We have not had some of the sky high returns on individual stocks that we saw in 2003, but we have been in a very peculiar market so far in 2004. Rather than go too far back and critique the 2003 winners, I will stay with trades made in 2004. Let's look at ALTI and see why we bought when we did.
ALTI was added to the portfolio on January 4th and purchased at $2.72 (Blue arrow on tonight's chart). Reading back through the commentary from around that time, you will notice that I mentioned this was a hot stock and one we needed to get into quickly in 2004. We could have bought in late December, but the up trend was not yet confirmed, so I decided to hold off some to make sure it was not a false breakout.
Looking at the chart on January 4th, the first thing you should notice is that the stock gapped up. It had been supported by its 9 EMA for several trading days and that was a very good short term signal. The recent volume was also very good, and traded an amazing 10 million shares that day. It started early and never slowed down, indicating the gap was for real. We took our position as the stock started to rally, with the flow of volume coming in behind us. (True confirmation of a move in a stock comes only when the volume is substantial.) The MACD had already started to confirm the uptrend, and seeing the volume coming into the stock told me it was the appropriate time to buy.
The very next day was another gap up. While I cannot say that we knew from the chart that another gap was coming, we did know that the strong uptrend was not a fluke. Volume was far too strong for that to be the case. The stock continued to move up along the short term moving average. I decided to sell within a few days of the stock selling down to close just over the short term moving average. It failed to have a strong rally the following day, and it was being sold off the day that we decided to take our money. Exiting at $3.64 gave us a 32% profit in about a 2 week timeframe.
In hindsight, we could have held through that sell off and taken our profit slightly higher, but the position was closed to lock in a nice 32% profit.
Since it is easier to read a chart from the extreme left, let's look at it after the fact. After closing the position, the stock moved back up from the 9 EMA. That line in the sand was not broken, so we could have easily held our position. The optimal time to sell (based on reading the chart from the left) would have been to sell the stock just shy of $4 when it fell below the 9 EMA. The prior day saw a major intra-day dip below the short term moving average. By that time, the indicators were rolling over. On January 30th, the stock closed below the line in the sand, and the downturn started. Look at the MACD again on the 29th, when ALTI had the intra-day dip well below the 9 EMA. It had rolled over and was crossing its trigger line, a true sign that the new downtrend had in fact begun.
From time to time I will have more of these chart critiques so you can see why trades were executed, and what we look for when we enter and exit.
Thank-you for referring a friend to TWPD. Some referrals have joined in the last few days thanks to our members spreading the word. The more referrals we have, the tighter nit we will become. I am looking forward to all of us becoming even closer.
Please tell a friend about our service. We would like to become a referral service only. With your help, we can be. 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
- CCLH: Big shake out today with a close at the HOD on good volume. Signals more upside to come.
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