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Monday, March 14, 2005
Market Recap
The markets made a nice reversal and closed at the highs for the day. Oil prices fell a little but remain above $54 a barrel for the time being. The Dow finished up 30 points, the NASDAQ was up 10 points, and the S&P was up 7 points. With the NASDAQ remaining below its 50 SMA, and the S&P and Dow below the double top it has formed, the markets probably would not go anywhere fast. I have a chart of the NASDAQ tonight that shows a bearish type flag formation. If we fall below this flag, then lower prices for tech stocks will be in the cards. Similar to the chart I showed of the S&P last night, trying to hold the 1200 level and the trend line. If these levels are breached, that index will be headed lower as well. Not doom and gloom yet, but certainly a cautious state is advised.
Day Traders
Day trading seems to be the only way to make a few bucks in this market right now. With oil prices still above $54 a barrel, stocks will lack direction and have trouble moving forward. I have not entered any new trades for the service lately because swing trading is not working out. There are plenty of stocks moving throughout the day but the moves have been unreliable for swing trading. What goes up today seems to go down tomorrow. I will be alerting the message board for day trade possibilities until we can get back to swing trading. I have been doing this for the past couple of days with good success. This morning one of the stocks I said would move was HANS. At the time of my post, the stock was up $4.00, it closed the day up over $11.00. Others I mentioned were CMLT and CRYP and they also did well. This will have to be the plan until swing trading starts working again.
Biotech Wreck
DNA came out with breaking news on a cancer drug and the stock surged up 20% in less than 5 minutes, taking the rest of the biotech sector with it. Take a look at the BTK index and you can see that this index, and most of the stocks in it, were looking better as a short play than a long play. With biotech stocks, you live a die on news releases. These charts looked broke but when news like this comes out, there is nothing you can do; even the charts cannot help you. We have seen great charts of some biotech stocks that have crashed down 50% in a single day because negative news comes out on one of their drugs. With biotech, it is a crap shoot and you best not be holding a position over night unless you are a gambler.
Sticking with the Plan
We are going to stick with our trading plan on the housing stocks. I had mentioned that I would not sell these stocks unless they closed below the 50 SMA, therefore I am still holding and thinking that a bounce will come soon. Most of these stocks hit their respective 50 SMA lines today and bounced. Hopefully, this will turn them up enough for me to get out with a respectable loss. I sold MDC today because it closed below the 50 SMA last week with no indication that it was going to bounce strong enough to close above it today. If this is the sign of things to come, I expect the rest of the housing stocks to follow. If we get a bounce to sell into that is all the better, however, I have conceded these to be losing trades and will have to take my pounding soon.
The Taiwan Situation
Security and military stocks may begin to see some action with the Chinese vote on Taiwan. The ‘National People's Congress' passed a measure authorizing the use of force against Taiwan in the event the tiny island nation attempts to declare independence. This battle of words has been going on for years. Ever since Taiwan succeeded from complete Chinese control in 1949, mainland China has been fighting to get it back.
The situation here is different from that of Hong Kong, which was under British control until it was returned to China in 1997. Hong Kong was a British colony since 1898. When it was set to be handed back to China, there was a lot of concern about the businesses that had flourished while under British control. The Communist Government of China made some assurances that things would not revert back to complete government control. While Hong Kong is not quite the same as it was when it was “free”, I do not think it has changed much.
The issues with Taiwan could be seen as a bit of a parallel. The biggest issue here is that there is not anyone controlling Taiwan in the position or mindset to return the nation to Chinese control. With this latest declaration, the situation in the region will certainly heat up some. I would expect to hear some strong words coming from various governments around the world. The Chinese have stated that force would be a last ditch effort but the fact that they have authorized the use of force is a big step. If the region heats up enough, I would suspect that we will see a pouring of military support into Taiwan. The US already provides a lot of military support to Taiwan, but I believe it could be increased dramatically in light of this bold move by Chinese officials. Watch the security and defense stocks during this situation.
For New Members
For all of the new members with us, please make sure to read the link “How to use Bulletin” at the bottom of the Bulletin page on the website. It is critical that you know how to use this trading tool before trying to trade the stocks mentioned. The effectiveness of your trades will diminish if you do not completely understand how the information is presented.
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