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Sunday, January 02, 2005
Market Recap
As expected, the markets closed out the week and 2004 in a very uneventful manner as the volume was again well below average. All three major indexes did end up closing fractionally lower. However, since the volume was light, the slight weakness was not a concern. The Nasdaq finished the day lower by –2 pts, the Dow was down by –17 pts, and the S&P closed lower by just –1 point. Similar to Thursday, a little weakness came near the close. My guess is that this weakness was due to a lack of buyers and not from an over abundance of sellers.
2004 TWPD & Indices Recap
Despite what was probably one of the most difficult years in the markets for short-term traders like us, a late year rally pushed all three of the major indexes high enough to end the year with positive gains. Gains in 2004 on the major indices were as follows:
- S&P (SPX) +9%
- Nasdaq (COMPQ) +9%
- DOW (INDU) +3%
- Russell 2000 (RUT) +17%.
The RUT has by far out paced by the rest of the market at 17%. It has out paced the other indices in the last two years, proving the TWPD stance on small cap stocks to have been correct. TWPD will continue to play the small caps in 2005 as it has in 2003 and 2004.
A quick look at the Nasdaq's beginning and ending prices for the year would lead most investors to believe that it was a fairly uneventful year in the markets. However, a closer look and we see a high of 2153 was reached early in the year followed by an 18% drop to the low of 1750 just 8 months later. That low of 1750 ended up being the launching pad that propelled the Nasdaq up 24% by the end of the year. There were plenty of outside influences in 2004 as higher oil prices, the war in Iraq, and the election were in my opinion the three biggest influences on the markets in 2004.
TWPD finished 2004 with compounded gains of +19.3%. A percentage gained that I am personally not extremely pleased with even though we did outperform the markets. I can assure you that in 2005 TWPD will outperform the markets by a much greater margin due to the steps I have taken to ensure that we do not have any tax loss selling to worry about at the end of 2005. The TWPD trade record since the inception of our service in May 2003 finished the year with compounded gains of +472%. This means that if you started with a $10k portfolio and traded every alert since May 2003 your portfolio would now be at approximately $47k. The amazing thing about these gains is that at no time did we invest more than 5% of our portfolio in any one trade. This proves that over time using our methods you can indeed dramatically improve the size of your portfolio without taking huge risks that can potentially wipe out your portfolio.
Success Stories
How did you do in 2004? I would love to hear about your success stories. Have you reached your goals? Are you close to the goals that you set for yourself when you joined us here at TWPD? We have many people in our group that have made trading their fulltime job and it makes me very happy when I hear about members that have been able to improve their lives through the service that we offer. The only thing I ask is that I have your permission to use excerpts from your emails as testimonials that we post on the website.
Looking Ahead
I have three of charts of the Nasdaq tonight that show both a short and long-term view of this index. The short-term charts of the Nasdaq are looking very strong and should break into new highs very soon. Besides normal short-term pullbacks for consolidation, the Nasdaq has not made a lower high since the middle of October. It has been long and strong since the election and there is nothing in the charts that says the current uptrend will not continue.
While long-term views are important to keep an eye on, they are not something we should be putting a large emphasis on for our short-term swing trading style. We can use this long-term view for determining when it is a good time to be buying and selling stocks in our long-term portfolios. Tonight's monthly chart of the Nasdaq will make it clear why I plan to go 100% long in the TWPD long-term portfolio very soon. I have 40% of my cash available to invest, and I plan to buy 4 more stocks over the next couple of weeks. We are using 10% of our portfolio for each position in the long-term account.
The SOX index closed above its 200MA Friday, and it is looking better each day. The 50MA is pointing up and the 200MA has started to flatten out indicating that the index is basing and the start of a new uptrend could be coming very soon. One interesting note on the SOX is that it closed the year down –13.5%. I actually found that surprising considering that the Nasdaq was positive for the year. A strong year for the SOX in 2005 will no doubt translate into a strong year for the Nasdaq.
TWPD WatchList
I have four new additions to the bulletin tonight and four removals. Two of the four removals are OSTK and TZOO. One of my theories for these stocks that made parabolic moves last year is that many people have waited until January to take their profits in order to avoid paying taxes until April of 2006. So I have decided to remove these stocks at this time as I think they will be even more volatile and risky than they have been in the past. In addition to helping you find the stocks with the most potential, I also want to help you to avoid stocks with too much risk.
I will continue to watch them but I will not be a buyer of them until I see how they react after the New Year. We can always add them back to our watchlist later. The other two stocks I removed are also being moved to my backup watch list and will be brought back when the charts improve.
Please pay close attention to the down volume on any stock that you are planning to buy on a pullback, especially stocks that made nice runs in 2004 that may be subject to profit taking in the New Year. I do not think we will see widespread selling on all stocks that were up big in 2004. However, I do believe you will see some stocks fall victim to profit taking and in some cases fall through expected chart support levels. Nothing is worse than trying to catch a falling knife. Strong stocks will rebound from the selling and they can be bought as they move back up through the support they breached on the way down. Again, I am not predicting a sell off next week. These are just words of caution as we prepare to trade in the New Year.
From all of us at TWPD, we hope you all have a wonderful holiday season with your family and friends. We would like to wish all our members a very Happy New Year. May 2005 be a great year for you and your loved ones.
Stockcharts Listing
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