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Wednesday, November 03, 2004
Market Recap
The election results are final, and Wall Street seemed to be pleased with the outcome - at least for a majority of the day. The market acted exactly as expected, futures were up in pre-market and a big time rally at the open with most stocks gapping up. The relief from the uncertainty alone rallied the market this morning as the election results were all but final. I do not think it mattered who won as long as a clear winner was announced today. The market was going to rally at least for a little while either way.
Of course, like almost every other gap up this year, it quickly fizzled out and selling began almost immediately after the open. The Dow was up almost 200 points in the first ten minutes of trading, but it was downhill from there. Still, the Dow managed to hang on to a triple digit gain of +101 points by the end of the day. The NASDAQ gained +19 points and closed above that all important 2000 resistance level. This is a very good sign going forward, but the NASDAQ needs a rest here to consolidate the recent gains. It is a little ahead of itself; I would like to see some side ways trading to develop. This should create a nice, higher level basing pattern. The S&P managed a +12 point gain.
Previously I said it would not be surprising to see a temporary pop after the results were in with some selling to occur either late Thursday or Friday morning. This selling could still happen. Remember, the market does not particularly like either candidate, but with the uncertainty of the election behind us, the market reacted to the upside as expected. How long the rally lasts is another question. My trading was light today because I did not want to jump in and react with the crowd.
There are many strong stocks with charts setting up and looking great. However, there were many stocks that gapped up and reverse course today - this action is negative for those charts. I highlighted many of these strong charts Monday night in the chart section of the commentary. These are worth buying, but be careful as the market did not have a close strong today. I did not want to load the boat before the election in case of another debacle like four years ago. It was best to play it safe and wait it out. Now that we know the outcome, we can now pick and chose when to buy and build our portfolios with the strongest stocks in the market. We will want to watch these closely for an entry price in the near future. If we get an end of year rally like I think we may get, we are going to want to be positioned in these leading stocks.
Building a Strong Cash Position
I hope you have been able to accumulate cash over the last nine months while studying charts and following our commentaries and strategies. I hope you have learned a lot about trading and technical analysis during this time. This is a trading service of course but that does not mean you have to trade everyday. There have been many times over the last few months that I have stressed cash is king. Those that followed this advice have a strong cash position now and are ready to act on a market advance. Do not think that you are wasting time by not trading. When I first learned to trade, I did nothing but build up my cash position. As my cash built up, I used the time to read and learn. I knew I did not have to be in the market to learn how the market works. If I saved cash while I learned, I would have that much more cash to work with when the market was ready to cooperate. This site can teach you a lot, even if you do not trade right now. Patience is the hardest lesson to learn when learning to trade. For those that are gifted with patience, you will be rewarded when the market turns bullish. With that said, we may be on the brink of the next bull market. If we are, and you have saved your cash and spent the last nine months learning from us how to trade, you will be in a great position for accumulating wealth.
Traditionally, the markets rally following an election and I do not think this year will any different. I expect to see a number of stocks start to build momentum and a year end rally should be headed our way soon.
End of Year Selling
We need to consider our end of year planning. There are a few losses that we are currently sitting on. When a stock drops unexpectedly there is always the option of holding it for a possible recovery, but they do not always recover as planned. If this is the case, we have to resort to plan B, the dreaded tax loss selling. Unfortunately, we will have to turn these losers over in a tax planning move. Look for some of these losers to be sold off as we approach year end. If you still own these losers, I hope you stayed true to our 5% rule. If you did, then these few losses should not have a significant impact on your portfolios. Our portfolio has been using the 5% rule all year, and because of this, we know it will not be a significant loss to our overall portfolio value. For those that have not been with us since our inception, our portfolio is up almost 400% in less than two years.
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