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Thursday, August 19, 2004
Good evening friends,
Market Recap
The rally over the past few days fizzled out with the Dow, NASDAQ, and S&P all closing in the red. The Dow dropped below the critical 10,000 level intraday but managed to have a nice comeback in the last hour of trading to close at 10,040. The NASDAQ dropped -11 points and the S&P lost -4 points. The good news is that today's decline was on low volume.
Volume Speaks Volumes
These recent rallies in the markets have not shown any above average volume spikes. All the rallies have been on either below average or just average volume so it is hard to make a case for a real convincing bullish reversal. I am waiting and watching patiently for anything that looks like a meaningful volume rally. A big volume rally will confirm the move and reassure those that have taken some long positions. In the next two weeks volume should pick up, but because the market has bounced back up recently, I am wondering if we may not see volume pick up to the down side instead of the upside I was looking for in early September.
Double Bottom
I would like to see a decline to test the recent lows before September. This would create an ideal situation, letting the market form a double bottom just as everyone is returning from vacations. With everyone back and the market near its lows, it may entice some heavy volume buying from the big money (the institutions).
Of course, things never seem to play out as planned. For now, this is one scenario that I am looking to see play out. Tomorrow is options expiration Friday so things could get a little volatile. Be prepared for the volatility since these volatile days sometimes bring with it some good opportunities for day trading.
Google Got Gobbled
Today was the long awaited Google IPO, and investors and traders gobbled up shares like they were the last shares on earth. I must say, I am a bit surprised by the strength of the stock. Their initial pricing was way out of line, and we all knew it. They finally realized it as well, and the company reduced the range on the IPO dramatically, pricing the stock at the low end of the range. On top of that, Google cut the number of shares to be released. I am very surprised the stock took off as it did. It was priced at $85 and opened at $100. The low of the day was $96 and the high of the day was $104 on 22 mil shares traded, which is more than the float in the stock. The trading range today was not as volatile as I thought it would be, fluctuating only $8. It also seemed to pull up the rest of the sector as originally hypothesized. Some of those stocks gave back all their gains, while others managed to hold onto those gains. MAMA was up today, and I am sure it was because of the Google effect.
Black Gold
Oil hit another record high reaching $48 a barrel. Another surprise today was an article on CNN. Once again, TWPD is ahead of the major media outlets with our thoughts on the market. Just yesterday, we were talking about the price of oil and its impact on stocks. All the market speculation about what is going to happen next to affect the flow of oil has driven the market a little higher in the past few days. Now, we see this bit of news coming out…
http://money.cnn.com/2004/08/19/markets/bubble_cru...
I do not agree with some points in the article in that, if oil does start to come down, I do not think it will be a violent drop but rather a slow steady decline. If oil does go through a violent reversal it will probably be a psychological hit to the oil companies. We will watch the charts to see if any are setting up for a fall.
Knowing that markets move ahead of news, it is my opinion that stock prices of oil companies will start to decline before the actual price of oil declines. Airlines and transportation stocks should start moving up before the cost of oil starts moving down. If you follow the related stocks, you can almost predict what oil will do next. We will keep our eyes on this situation closely because oil drives the stock market. The proof is in the charts: when oil started to rise early this year, stocks started to decline; when oil prices start to fall, the stock market will start to climb. It is also possible the market may forecast falling oil prices ahead of time and move up before a decline in oil prices. The market may be forecasting it now with this recent market rally while oil is still at an all time high.
Oil has been a major part of the reason we have been in a bear market the over last eight months. Oil cannot go up forever, if we can get past the oil concerns, we may very well begin a new bull market. The black gold has had its run, it could go higher but I think it will start to level off once it reaches $50 a barrel. Let's hope so any way. Have a nice weekend everyone.
OTC BB Watch List
- NMKT (we already own it, but it still looks good right here)
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