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Wednesday, September 15, 2004
Good evening friends,
Market Recap
As the sellers took control of the market right out of the gate, today's action certainly made up for yesterday's nap session. Profit warnings from DOW component Coca-Cola and from technology stocks Xilinx and Celestica overshadowed the good news from Oracle yesterday. All three major indexes were down the entire trading session with the Dow finishing down –86 points, the S&P closing down just under –8 points, and the NASDAQ finishing the day lower by –18 points. The markets did make a brief intraday rally off their lows when the price of oil sharply reversed. However, by the end of the day, the reverse in oil prices was not enough to hold the markets up as the sellers regained control by the close. Both the S&P and the DOW closed near their lows of the day and the NASDAQ closed below the important 1900 level. The DOW also closed below its 200MA. This is a short term negative for the DOW.
On a positive note, the S&P is still above its 50 and 200MA. The S&P is sitting 5 points above its 200MA and this level needs to hold. Today's volume was above average as I expect it will be for the rest of the week going into options expiration Friday.
Looking Ahead
Was today's action a healthy pullback before the next move higher, or was it the beginning of a new downtrend within the market's trading range? I will not make any predictions at this point, but I can tell you that today's action does have me a little concerned. Here are my reasons for being even more cautious after today:
- The NASDAQ is still below its 200MA and now below 1900
- The DOW failed to break through the upper trend line of its channel three times and closed below its 200MA
- Sharp reversal in the VIX today, closing near the HOD
Keep in mind that one day does not make or break the markets, so let's see how the rest of the week plays out. I am not pointing these things out to alarm you, or to scare you into selling all of your long positions. I am pointing them out because I want to make you aware what is causing me to be increasingly cautious on a daily basis. As much as we all want the markets to go up, we cannot ignore what the charts are telling us. Right now the charts are telling me to use caution.
Due to the volatility that I am expecting to see Thursday and Friday and the mixed signals that the markets are giving us, I have reduced some of the open positions this morning. I suggest anyone that cannot watch the market throughout the day be very cautious opening any new long or short positions for the rest of the week. In many cases, the volatility will trigger your stops making it very hard to stay in a position.
Trading With Consistency – Part 2
(This is a continuation from yesterday's commentary on trading with consistency.)
Another important part of the strategy is having a goal. With a goal, you will know where you are, how you are doing, and when you have reached your destination.
A baseball team knows their goal is to win the World Series. That is their focus, and the path to getting there is not winning a single game or getting a single home run, but consistency. If the destination is the World Series, the way to get there is by consistently hitting the ball, scoring runs and winning games. Like a baseball team with goals, make sure you know where you are going with your trading. Set goals, evaluate your progress, and give yourself a reward every so often along the way. It will help to reinforce your plan.
Once we start seeing decent charts, they cannot simply be bought and expect to wake up the next morning to see them double. We have to be consistent, not only in picking solid charts, but also in allowing those stocks to move for us. Do not panic if a stock begins to move slightly away from our position. Remember, it takes three strikes before you are out, it takes three outs before the inning is over for you, and it takes nine innings before the game is over. If you can learn to be consistent for the entire game, and not focus on one particular swing, then you will begin to relax and the “hits” will come more naturally.
The key to winning the World Series is not hitting a single home run at some point in the season. Likewise, do not try swinging for the fences on every trade you make. You may hit a few, but the strike outs will add up. If you trade consistently and look for singles and doubles, rather than the home run on every play, you will find your portfolio will also be growing consistently. One of the key lessons is that winning is not about who comes out with the most. When we need to preserve capital rather than trade, we are focused on our end goal.
So remember to start with a goal in mind. Use that to help formulate your strategy to get there. Give yourself rewards along the way as incentive. Finally, stick to it. If you have a plan, stick to the plan. Your goal may change from time to time, but that is what evaluation is all about. You can see where you are and where you are going. Then, you know the steps to get there. Above all, remember that it will take time. You cannot get from spring training to the pennant overnight. Likewise, you cannot begin investing today and expect to make your goals by tomorrow.
OTC BB Watch List
ANTR – Up another 4.5% today
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