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Thursday, March 03, 2005
Market Recap
A mixed day on Wall Street as oil was the big story again. The day started out looking good with the futures up followed by strength at the open. Oil then decided to start creeping up and when it spiked, the buyers were nowhere to be found. At one point oil went as high as $55.20 a barrel, just 45 cents shy of the all time high. It did manage to pullback quite a bit from the highs of the day, but it was still up for the day. The NASDAQ finished the day down –9 points. The Dow was up by +21 points and the S&P closed flat.
I mentioned yesterday that it is going to be difficult to predict how the markets would price in $50+ a barrel for oil. We know that when there are large intraday price spikes, we can almost certainly count on the markets reacting negatively. We also know that the markets will have a very difficult time breaking into new highs when oil is moving up like it has been in the last 2 days. What we do not know is how long it will take the markets to accept the higher oil prices and reduce its dependence on what oil is doing. Last year the markets acted very similar when oil first moved above $40 a barrel and eventually hit $50. Over time, the markets accepted the realities of higher oil and stopped reacting as violently to the daily changes in oil prices. Our best move right now is to wait for the markets to commit to a breakout or a breakdown or we will continue to get whipsawed around by the large intraday swings as of late.
Looking Ahead
When good charts with solid patterns are breaking down without warning, its time to take a step back and wait for the markets to commit. I am of course talking about today's trade on TOPT. Needless to say, I was very surprised when it fell without warning through many levels of support. This was a very good example of why I have been very cautious with my trades. It was a costly lesson, but a lesson nonetheless. If this trade has not convinced you that patience will save you money, I do not know what will. As much as I love to trade and cheer stocks on when I own them, it is tough to justify trading just to trade in this environment. After reading some of the comments people were making on the message board yesterday, I think most of you are in agreement with this view.
The trades that we do not make are often better lessons than the trades that we do make. I bet many of you over the last couple of weeks have said to yourself, “glad I did not buy that stock” after it collapses. When this happens, ask yourself why you did not make the trade. Was the volume too strong or too weak? Did you see something in the chart that changed your mind? This is just one reason why I recommend keeping a trading journal. Write down not only the trades you make and the reasons why you made the trade, but also write down the trades you decided not to make. I guarantee that if you do this, you will be better prepared for the choppy and unpredictable markets.
Not much has changed with the charts of the indices. The NASDAQ continues to be the weak link and is now sitting just above support at 2050. I thought we would get an answer to the question today but, once again, oil got in the way. As I mentioned, our best bet right now is to wait for the commitment of the markets and then put our cash to work accordingly.
I do not often ask favors from our members, but I would like to request that you try and remember to vote for our Stockcharts Listing once each day. It is been our best form of advertising lately and your help is very much appreciated! The link to the listing is below. If you are not familiar with our listing, after clicking on the link below there will be a link at the bottom of the page entitled “Vote for It!”
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