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Sunday, January 30, 2005
Market Recap
After some brief strength at the open the markets, once again were turned away at the 3 key resistance levels that I refer to each night. By the end of the day, the markets did manage to climb up off the lows as some late session buyers showed up to do some bargain shopping. The Nasdaq finished the day down by –11 points, the Dow was lower by –40 points, and the S&P gave up –3 points. Friday was the day for short-term investors to place their bets on the success or failure of the weekend elections in Iraq. Oil prices did retreat a bit on Friday but, did not seem to impact the markets much as the oil traders and investors waited to hear the results of the weekend OPEC meeting and, more importantly, the success or failure of the elections in Iraq.
Taking a closer look at the Nasdaq, you will notice the low on Friday was 2024. This is one point above the 38% Fibonacci Retracement Level, that we identified last week as a possible bounce area. The Nasdaq is now sitting in between this support and resistance at 2050. If the 2023 level does not hold up, 2000 would be next. A breach of this level, and it is almost certain that the Nasdaq will make a visit to its 200MA, currently at 1975. As important as the charts are to our long-term success in the markets, occasionally there is a world event that impacts the markets beyond the scope of the charts. I am, of course, referring to the elections in Iraq.
The Iraqi Citizens Have Spoken
The elections in Iraq have been a complete success. There was very little violence and there was a 72% voter turnout. This is far above what was expected. The Iraqi people have spoken, democracy has won, and the terrorists have lost. The results of this election went about as good as anyone could have expected. Even if you do not agree with the reasons that the US went into Iraq in the first place, I think we can agree that a successful election is a clear sign that the Iraqi people have taken hold of the power of democracy and are looking forward to their voices being heard for the first time in over 50 years. The country still has a long way to go, but the first step has been taken and that step was a big one.
Wall Street is going to love this news, come Monday morning. I am sure we can expect the stock futures to be up substantially before the bell. If the market can not rally tomorrow, I do not know what will make it rally. An early morning rally is almost certain, the question is, will it be a sympathy rally or will the bulls regain control of the market. I think we could very well see a snowball effect of momentum in the short-term, if oil prices also retreat and give the market one more reason to rally.
Looking Ahead
Assuming a post Iraq election rally in the markets, investors still have much to digest over the week ahead, and that could easily add more fuel to a rally or stop it dead in its tracks. Earnings continue to pour in this week highlighted by Google on Tuesday and Amazon on Wednesday. The economic highlight of the week is, no doubt, the FOMC meeting on Wednesday in which all investors will be watching closely. A quarter point raise in the fed funds rate is expected.
Our strategy for the coming week will be to remain cautiously optimistic, as we need to wait for the markets to close above the 3 important resistance levels on strong volume. If the strength at the bell is sustained, we will more than likely get stopped out of the 2 open short positions that we have. Fortunately, we only have 2 open shorts and both are in the green. Set stops on these positions at our entry prices to ensure a breakeven trade. As always, we will react to the reaction on Monday and, if indeed, we are in for a nice ride up, we will have plenty of time to put our cash to work to the long side. Please do not chase any stocks at the open. Chasing will rarely pay off, as it is always better to be a little bit late to the party, rather than early and have the party be cancelled.
Please tell a friend about our service. As always, thank you for your support past, present and future. We will see you Monday evening.
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.
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