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Tuesday, October 26, 2004
Market Recap
Today was a super snap back rally for this over sold market. The market was over sold and due for a bounce. The levels we previously determined to be support held today. Let's look at these support levels again, they were mentioned several times in the last week or so. These support levels were: Dow 9750, NASDAQ 1900, and S&P 1100.
Today the Dow opened at 9750 with a low of 9749.55, the NASDAQ had a low of 1905, and the S&P had a low of 1094. The low for the S&P was slightly below the support level but it closed above that level at 1111, up +16 points with a close at the high of the day (see chart). The Dow and NASDAQ also closed at the highs of the day gaining +138 and +15 points respectively. The NASDAQ had above average volume, but the Dow's volume was not as good as one would expect for this big rally. Mixed signals but the closes at the high are a good sign.
The Dow and NASDAQ are both near the bottom of their respective trading channels and are ripe for a move higher. As long as these channels stay intact, there should be a nice rally. If price moves below these channels, we have a problem. Until that happens, the way to trade this market is to go long at the bottom of the channel or near support areas, and sell at the top of the channels or near resistance. This has been a trendless market for months, trading within these channels. If the pattern holds true, we can expect a run to the top of the trading channels on these indexes. Plenty of earnings out tonight after the bell and stocks are flying high in after hours trading. This plays right into our bounce scenario again tomorrow.
Pumping Oil
The talking heads are at it again, this time they are pumping up the oil stocks. With oil up over $55 a barrel, there are a few stocks that have been benefiting from rising oil prices: the oil companies of course, along with energy and utility stocks. So, are these stocks a buy now?
http://money.cnn.com/2004/10/25/markets/oilstocks/...
According to the analysts, they are. Just like Google, the analysts are coming out of the woodwork to tell the crowd to buy oil stocks. We should know by now not to react to what the analysts say, but to react to the reaction. Dr. Alexander Elder often talks about the psychology of the crowd when trading the markets and to do just the opposite of what the rambunctious crowd is doing. If the analysts are trying to get people to buy oil stocks, that raises a big red flag in my book. I have said before that I believe oil will rise to $70 a barrel. If I am right, then yes, we should be buying oil related stocks because there should be more room to run. What bothers me about my prediction now is the way the analysts have started to pump up the stocks. When this happens, you know the end of a run is probably near.
I like to buy stocks before they make the front page of Money magazine, before everyone knows about them. Once they appear in a major publication, you can bet the run will soon be over and that is the sell signal. I hope I am wrong and oil does not reach $70. Oil at $70 would definitely slow down the progress of the stock market, cost us all higher heating bills this winter, and pay ridiculous amounts at the gas pumps. After reading this article and listening to the analysts pumping oil stocks, I am starting to think I might be wrong, but I will wait for the break down of the charts before I jump in and short these stocks.
GOOG
Google is a good example of these pump-and-dump schemes. Recently there have been analysts along with few so called professional traders coming out with price targets anywhere from $250 to $400. It is crazy to think that Google is worth that much money, but the stock keeps flying high. Where were these analysts just a few weeks ago? Why were they not screaming “buy” back when the stock was at $100? Where were they at $125?
Just before the IPO, quite a few were saying they thought the IPO was overpriced. Then after the IPO they said Google above $100 was well over priced. Now, after they loaded up on the cheap, they are suddenly starting to forecast these excessive price targets as if it were the late 90's internet bubble all over again. Many people have been washed out of the market since that dreaded bust five years ago. Now a new crop of lambs have come to market for the wolves to feed on. The cycle may be starting all over again, although I doubt we ever see the mania like we did in that bubble.
Oil stocks are beginning to see the same action. There will be some decent earnings coming out. But I am sure the smart money has already loaded up on these stocks many months ago. If oil is near its highs you can bet they will be selling into the earnings. They have to pump these stocks up now to the public so they will have someone to dump the shares on when earnings are released. Once again, where were the analysts months ago? Oil has been over $50 a barrel for a while now, and has been over $40 for even longer.
Beware - Most of these brokers DID buy Google around $100, while they were telling us it was over priced. They also bought oil stocks back when oil was around $30 but we never heard any upgrades at that time? Oh what tangled webs they weave.
Taco Ball?
On the funnier side of the news, with the possible implication on one stock in particular, I bring you this. What some companies will do for exposure.
http://money.cnn.com/2004/10/25/news/fortune500/ta...
If someone hits that target, I bet short sellers will flock to the stock. Taco Bell will be hit with a huge financial problem. That's a lot of free tacos. If everyone in America showed up and asked for their free taco, you would think it would have a huge impact on earnings. Yum Brands (YUM) owns Taco Bell. If someone hits that target with a homerun ball, the stock should take a hit as well. If I were long the stock and someone hit the target, I think I would have massive indigestion real quick.
OTC BB Watch List
- TRLG
- TKER on the list many times and still on the move.
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