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Sunday, March 13, 2005
Market Recap
Oil closed just under $55.00 a barrel on Friday and this had stocks retreating once again. The Dow fell 77 points on Friday and is closing in on the 10750 support level. The NASDAQ dropped 18 points to close below its key support level of 2050 and this is not a good sign for anyone long in the tech stocks. The S&P lost 9 points and closed right at 1200, a critical psychological level that I think must hold or it could be the start of bigger problems ahead.
Intel Outlook
INTC came out with its mid quarter update after the bell on Thursday and then guided up. Everything looked to be on track for better things to come in tech land but, as usual, it was a case of buy the rumor and sell the news. After this news, the stock traded as high at $25.50 in after hours but this brought the profit takers and short sellers in at Fridays open to pressure the stock and it did nothing but fall all day. It fell to a low of $24.00 which is a big swing for this tech giant. When INTC cannot do well after a good mid quarter update, you know the SOX and the NASDAQ are in trouble.
Double Top Breakout Failure
The markets had a rough week after failing the double top breakout mentioned in the charts that I showed of the Dow and S&P. I have updates on these charts tonight along with updated charts of STHQ long positions. If you have not bought these stocks, I do not recommend buying them now. These will be losing trades as I am looking to sell most of them into strength. Unfortunately, my timing on the entries of these stocks was terrible and as a result got underwater very fast. Now the hope is to close the positions the first chance I get, with as little loss as possible. I have a parade of charts tonight to illustrate where I am looking to exit these positions.
Money Management System
Now, if there is any good news out of any of this, it has to be the sound money management system that we have in place to protect us from total collapse of portfolio value when stumbling on a market direction trade. I loaded up on the market leaders when the Dow and S&P broke out from the double top chart that I had been showing. Little did I know that this breakout would be a fake out. There is always that chance and we knew it but if you do not take a chance, the market will leave you behind. I took a chance and got burned badly. But because of our strict 5% rule (5% of portfolio value in any one trade) even if we sold all of our long positions at Friday's closing prices, the STHQ portfolio is still only down 3.5% this year. Being down at all at this point in the year is nothing to be proud of, but I am confident that these loses will be made up as the year progresses. All it will take is one big winner and we will be well into the green again. I am confident that we will out perform the market many times over by the end of the year.
You Cannot Be Afraid to Lose
For now, we have to take what the market gives us and its not giving us much. Remember, it is not how much you make but how little you lose that keeps you in the game. If we end up selling the housing stocks for a small loss, in the grand scheme of things, it does not hurt the overall portfolio that much. As I mentioned in a past commentary, once you begin to trade, you should enter it knowing that you will be in the game for the rest of your life. You treat it as a business and you try not to go out of business. I have been trading stocks for a long time. It is not easy, even for an experienced trader sometimes. What keeps a trader in the game is admitting he is wrong and cutting the loss quickly. I will lose money on the housing stocks but I will also live to trade another day. Its when a trader cannot admit he is wrong and continues to hold a losing trade, that his portfolio dwindles down to next to nothing and he has to go back to his old job because he went bust holding losing trades. Let's face it, anyone can be a trader, all it takes is a few bucks and an online account and bingo, you are a trader. However, making money trading is a whole different matter. I have done well, but it is because I am not afraid of small losses. If the trade is not working in my favor, I have to get out. Capital preservation is more important than profiting. That is what allows you to be in the game in the first place. Better times are ahead but only if you are patient enough to wait things out until the odds are in your favor.
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