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Thursday, March 17, 2005
Market Recap
It was a very uneventful day in the markets today, but after yesterday's sell off, uneventful was welcomed with open arms. The NASDAQ had a trading range of only 13 points and by the end of the day it closed virtually right where it started. The DOW had a little bigger trading range but it too closed right near where it opened and finished lower by just –6 points. There was some disparity between the S&P and the DOW from a percentage basis but this was probably due to the re-balancing of the S&P. The S&P closed higher by +2 points. At one point in the day it looked as if we were going to move and hold above the 2023 level on the NASDAQ as discussed last night, but the gains just did not hold up as the sellers are clearly in control of this market. We did manage to get some late day relief in oil prices after it had been trading up at all time highs the entire day. A pullback in oil would be a welcome sight for the markets right now but it is just not something we can count on based on how the chart for crude oil is looking. Unfortunately, the breakout on the chart for crude oil is one breakout that I do not think we have to worry about failing.
Looking Ahead
It is now decision time for the markets. The NASDAQ is at the bottom of the channel that was created by the lows in January just above 2000. The question on everyone's mind now, myself included, is will we bounce back up to the top of the channel at 2100? Or is this the final retest of support at 2000 before we start making new lows? I wish it were as easy as looking at a chart to determine the answer to this all-important question. There are so many things that are impacting the markets and more importantly, the psychology of investors. It is getting more and more difficult to rely on just a chart when trying to determine market direction. Right now we have an over abundance of variables impacting the markets both negatively and positively, so it is very easy for both the bulls and the bears to make a case for their position. When the evidence in a trial sways to neither the plaintiff nor the defendant, you end up with a hung jury and that is exactly what the markets have right now. Yes, we have had pockets of sustained strength and weakness but overall, the market has not sustained a meaningful trend in either direction. Until there is an overwhelming piece of evidence that sways the jury in one direction, expect the markets to be range bound and for the trading environment to continue to be challenging.
Let's assume that the markets are going to continue to trade in a range like they have in the first three months of this year. We need to assume this until the charts tell us otherwise. This means that our best chance for success in this type of environment is to go long when we are at the bottom of the channel and to short when we reach the top of the channel. Sounds simple right? Obviously it sounds easier than it really is because it is still important to buy strong stocks in order to get full benefit of the anticipated market strength. There is nothing worse than owning a bunch of stocks that are not moving, especially while the major indices are moving higher. We are at the bottom of the channel now so its time to buy some stocks in anticipation of a move back up. After today's selling, we only have 3 open long positions. This will change very soon because I plan to start buying some stocks in anticipation of a bounce. One thing I am not planning to do is to rush out tomorrow morning and purchase 20 stocks. We still need to be selective with our buys and use stops accordingly. If we buy a stock and it does not bounce, we will move on to the next one. I do anticipate doing more stock scanning throughout the trading day as I look for stocks to buy and will update everyone via an “update” alert with any new stocks that I find and the prices that I intend to buy them at.
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