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Tuesday, August 17, 2004
Good evening friends,
Market Recap
Good housing numbers were out before the bell and that helped the Dow, NASDAQ, and S&P 500 tack on gains at the open with a nice move up. But as the day wore on, it was evident there would be no follow through rally on yesterday's big move up. Light volume was the story again and little follow through makes yesterday's rally very suspect.
The Dow gained only +18 points, the NASDAQ gained +12 points, and the S&P gained its usual small move, another +2 points. The Dow cannot seem to get over the 10,000 level, and the 1800 level is proving to be tough resistance for the NASDAQ.
The largest gains appeared to be a result of bargain hunting among groups that have been beaten down in the latest market deterioration. Stocks making new 52-week highs are few and far between these days. There is a lack of stocks that are looking healthy and very few charts to worth trading. When there are not many charts looking and acting healthy, it is hard to believe in any rallies. This clearly shows a lack of leadership in the market by any one sector.
With the lack of volume on rallies, lack of institutional buying, and poor leadership in the market, I do not believe it would be wise to rush into buying new long positions until a confirmed rally is established.
This brief market rally had a decent move, but for the size of the gains yesterday, the light volume shows us that institutional buying is not responsible for the rally and thus very suspect. I will continue to be skeptical of rallies until the institutional buying demand returns to the market.
Before this market bounce, almost all sectors were extremely oversold. This bounce is simply a technical correction rather than a true rally. A sustained inflow of buyers returning to the markets and a much higher volume is required before I am convinced the rally is ready to change this market trend. Too many people have left the playing field and maybe even the stadium. You cannot make any money in the stock market unless you are on the field in the game. There is a lot of cash on the sidelines that needs to be put to work; the money will return to market before long and that is when the real rally will begin.
Profits Blown Away?
With hurricane Charley looming over the insurance group, I am surprised the sector has not sold off. With the big storm passing through Florida and leaving what could be $15 billion in damage, the entire sector should be down. Several carriers have come out and stated that the storm would likely have an impact on their third quarter profits, but the stocks are up in this rally.
On Sunday I was adding insurance stocks to my watch list expecting to take advantage of a profitable opportunity when these stocks went down on Monday. Much to my surprise, they did not go down as expected. Once again the markets are reacting contrary to what is a logical reaction to such an event.
Stay In the Game
Remember to watch the charts and stay in the game. Most of the big money in the stock market is made off the bottom because stocks tend to bounce (and bounce hard) at the end of a bear market. It is difficult to pick the bottom, but if you are not in the game waiting for the bottom to hit, you will miss the initial move up. Yesterday's move was not it; the volume told us it was a true rally. When the bottom comes, you will need to be ready and that is why you need to stay in the game. We may not be buying a lot of long positions at the moment, but we are prepared to jump back on the field when the opportunity presents itself.
My father use to tell me, “Son, there are three types of people in this world: those that make things happen, those that watch things happen, and those that say ‘What the heck happened?'” We are in the first group; we can make things happen for us by staying in the game. Those in the third group will wonder what happened when they finally wake up and see the NASDAQ at 2500. They will start buying about the time the first group decides to take some profit and the market starts to pullback again.
OTC BB Watch List
- PWRM (this stock from last nights mention was up 25% today on record volume.)
- AVCA (listed here last night and made new highs today. Still looks good)
- RIMI (listed here last week at .55 closed today at .74)
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