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Monday, September 27, 2004
Market Recap
As predicted in yesterday's commentary, there was more downside for the markets today. The Dow was down -58 points closing near the low of the day and more importantly, closing below the 10,000 support level. We need to see some buyers come in and boost the Dow back above 10,000 tomorrow or this index could be on its way to visiting the recent August low around 9800.
I also mentioned that I thought the NASDAQ and S&P would re-visit their 50 SMA's near 1855 and 1100. Today they came close with lows of 1858 and 1103 respectively. The NASDAQ dropped -19 points and closed 1 point above the low of the day. The S&P fell -6 points. The gap down on the NASDAQ does not do the chart any favors, and with oil prices rising above $50 in after hours, it is not looking good for stocks near term. About the only good news is that volume was below average on this downward action today.
Paying Down Your Credit Card
I love these financial articles about reducing debt or becoming wealthy. They sound like a late night infomercial. The latest “guru” article comes to us on how to reduce debt on $10 a day: http://money.cnn.com/2004/09/23/pf/debt/chatzky_in...
The $10 a day is actually a great idea. By shifting your day to day expenses around, you really can save a lot of money. Part of the problem these articles miss is the spending habits of consumers. They cite saving $10 a day can pay off an $8,000 credit card debt within three years. This assumes that your $8,000 debt does not continue to increase. $10 a day is $300 a month or $3,600 a year. That could pay off a static debt of $8,000 within three years but that means you can not use that credit card to purchase anything new during that time frame. It also assumes that your credit card merchant is generous enough not to charge you high interest rates on your balance.
In order to pay off your credit card in three years as the article claims, you can forget about filling up the gas tank with your credit card. Want to eat out? Better take cash. Here comes Christmas, no presents this year, unless you have the cash. Weekly groceries? Nope, cannot use the card for that either. We use these cards for these purposes, nobody carries cash like they used to. The trick is to pay the bill in full every month when you get your statement, this way, you never accumulate any debt and you have a revolving account that keeps your credit good, without carrying around a ton of cash in your wallet.
Spending Within Your Means
The main problem is not that people have this $8,000 bill to pay off. It is how the bill became $8,000 in the first place. Credit is easy to get and easy to use. If you can avoid carrying a bill from month to month, you will not have that large bill that someday needs to be paid off. If you do not pay it off, than all you will do is pay the merchant interest for the rest of your life. I think a much better solution would be to buy only what you can afford. That way, the extra $10 a month could be putting an extra $3,600 into your trade portfolio each year. What better way to save than to not be spending beyond your means and having the ability to put money into your portfolio.
Trade Wisely
If you want to have money, you also need to know how to keep it. At TWPD, we not only show you how to become a better trader, we also show you how not to lose your hard earned cash. By being cautious when the market calls for it and not trading foolishly by disregarding market conditions or charts, you will preserve your cash. This strategy will help you keep what you have and put you in a position to make more when the markets are ready.
Looking Back
This year has been a terrible year for the market. Since February I have maintained that cash preservation is the key to success in trading stocks. As a result, we have had many trades that have lost 2 or 3%. These losses are bound to happen if your strategy is to preserve cash. We simply can not stay in trades that do not work. The proof lies in the few big losers we have held like TPPP, SNTK, and AWM. These losing trades are inexcusable and just go to prove what will happen if you fail to limit losses. If we had not limited our losses in other trades to 2 or 3%, we would have even more losers.
In a market like this where breakouts fail and pullbacks fall through support, or when short positions fall through support only to rally back up through resistance when the market rallies, it is impossible to make money consistently. The action described above is what we have seen for the last eight months. The market has been directionless and brutal for those who insist on feeding their brokers trading commissions.
It is a tough market when breakouts fail and pullbacks fall through support and we have seen this action time after time over the last eight months. Unfortunately, some members have left us during these rough waters. They do not want to hear about cash preservation, they will have none of that advice. They want to trade no matter what the market is doing. This is not a service that will tell them to “buy, buy, buy” no matter what. We are not here to lose people's money. We are here to help everyone learn how the stock market works and to become better traders. Part of becoming a professional trader is to know when to trade and when to preserve cash. When I move to a more conservative approach, it is for good a reason; I have been in conservative mode for most of the year. Better times will come and fortunes will be made, but the market is not ready for that yet. The charts will tell us when the time is right. Believe in the charts, they will not let you down.
OTC BB Watch List
- PWLX (mentioned here last Wednesday at .25 closed Thursday at .38 up over 50%)
- GASE
- EZEN
- COPY
- TREN
** All of these stocks were up today in a down market.
Here are some recent IPO's with good looking charts. They will not be added to the Bulletin because the volume is too thin.
- LMRA
- MRLX
- LPL
- SRVY
- RNOW
- ECST
StockCharts Listing
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