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Sunday, January 09, 2005
Market Recap
It was another head fake open on Friday as the markets continue to be in “sell the strength” mode. Once again, the futures prove how unreliable of an indicator they are and in most cases can be used as a contrarian's indicator. Similar to Thursday, there were pockets of strength that looked like a much-needed bounce would materialize. However, the sellers would have none of that, taking back control, and managing to send all three indices into negative territory by the close. The Nasdaq finished the day down by –1 point, the Dow ended lower by –18 points, and the S&P closed lower by –1 point. The last few days of trading are great examples of what I have said many times before. The amateurs open the markets and the professionals close the markets. Think about how much money the professionals save themselves by bidding up the futures before the bell and then selling the strength the rest of the day. There are many games the professionals play and manipulation using the futures is one of them.
It seems hard to believe that just one week ago we were all waiting for and expecting the next big up move in the markets. However, after a rough week of selling, here we sit just 7 days later and the market now looks like its ready to crawl into a hole and hibernate for the winter. The bears are controlling this market right now and it is best to just move out of the way. The selling volume has been well above average, especially on the tech heavy Nasdaq. Cash is king and I hope that you have taken some money off the table during this downturn in the markets. Knowing when to jump off the bull is a key ingredient to having longevity in markets. We have lots of cash ready to be put to work and I look forward to jumping back on the bull with both feet when the time is right.
Looking Ahead
It is not all gloom and doom. The Dow and S&P are still above their 50MA, so I am not going into bear mode just yet. We are very oversold and a bounce is coming. It is always difficult to predict exactly when a bounce will occur so our best bet at this point is to simply watch and wait. Remember that pullbacks in a bull market are common and also good for the overall long-term health of the markets. Pullbacks may not always happen when we expect them, but we can easily survive these pullbacks by protecting our capital with tight stops and having a plan for re-entry. One bright spot Friday was a bounce in the Sox index. It was not a huge bounce, but it was a bounce nonetheless. The Sox index is still in need of some major repairs so by no means is it time to jump in and buy semiconductor stocks.
It is time to do some clean-up work on the bulletin. There are many stocks hanging on by a thread right now and I just do not see any reason to keep them around. So I have removed quite a few stocks tonight. I did find one new stock but with the removals we will be down to less than 20. Most of the stocks being removed will take more than one day of strength to fix the chart so there is no reason to watch them while we wait for the chart to improve. We can always add them back to the watch list later. I am sure once we do get a bounce that the bulletin will fill back up and we will have some nice charts to go long on.
As you know, even during a week like we have had that there will always be stocks moving higher. So while cash is king, we still need to be on the lookout for the hot sector/stocks of the day that we can play. I am on a constant lookout for new stocks and I will send an alert for any new stocks that I find during the trading day. Even in the current conditions I have no problem making a few selective buys as long as we stay disciplined and keep tight stops.
Pullback Strategy
I really liked how the last couple days have worked out, so I will continue to look for pullback plays each morning and send alerts out for any stocks that I have orders in for. This is the safest way to play for a possible bounce so that we can take advantage of the strength when it does happen. Any stocks that do get bought using this method will be protected with very tight stops to ensure that we are out of the way if the markets do decide to continue lower. Even though none of my limit orders filled the last two days, by sticking to our planned entries, we ended up saving ourselves from entering stocks too early before the bounce. I purposely set my limit orders at a level where they are still above support but at a level where if they get filled the stocks would be severely oversold.
Earnings Season
Many big name companies are reporting earnings this week. INTC reports after the bell on Tuesday and you can be sure that many investors will be watching this report closely. I would not be surprised if we continue to see weakness or lack of a bounce in the markets until after INTC reports. Wednesday will no doubt be a volatile day in the markets and as always we will be reacting to the reaction.
Do not forget to check your short-term holdings and know when those companies are reporting earnings. Holding a stock through earnings is risky and I do not recommend it. You can always buy the stock back after the dust settles.
http://www.fulldisclosure.com/earning.asp?date=200...
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