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Sunday, March 20, 2005
Market Recap
Friday, the markets were on a roller coaster ride heading down most of the day. Just when it looked like the bottom was going to fall out, the buyers started to show up in the last hour of the day and took the Dow into green territory after being down 60 points. The Dow closed up 3 points, the NASDAQ lost 7 points, and the S&P was down a fraction. On Friday, the Michigan sentiment index fell for the 3rd straight month. This along with rising oil prices, a big re-shuffling in the S&P 500 index, and with options expirations was the most likely cause of Friday's volatility in the market.
Market Outlook
Tonight, I have updated charts of all three big indices. It looks to me like the markets are headed lower. We are approaching oversold conditions from which we should bounce, at least temporarily. The 200 SMA's should hold and that is the area that we could see a nice bounce. I would be willing to risk some capital and go long at those levels when reached. However, when all three indexes close below their 200 SMA lines, it is time to close all long positions and start to look for short opportunities. I am not saying that these levels will be breached but we have to expect the unexpected. With oil prices and interest rates on the rise, we have no choice but to read the message of the markets. The markets are telling us that we should be light on long positions right now and I for one am not going to ignore what the market is trying to tell me.
Oil at $57.00 a Barrel
I watched a few financial shows this weekend and everyone is talking about oil. Normally, I would say once the media starts talking about a particular segment of the market or commodity; it would be the time to sell. However, everything I heard this weekend from these so called guru's was that “oil is too high and is going to go down.” If that is what they want us to believe, I have to believe just the opposite. To me, this indicates that oil prices still have much further to go to the upside. Oil hit $57 on Friday, an all time high, and I continue to believe $70 is very possible before the end of 2005.
The Fed Meets Again This Week
The Fed meets again this Tuesday and will issue a statement after the meeting to outline their plans involving interest rates. It is not weather they raise rates or not that will spook the market, it is what they say in their comments after the decision that will move the markets either way. It is very likely that the high price of oil and gas will be the focus of the meeting. I expect to hear something about the high price of oil suppressing growth and putting some risk on the economy. It is anyone guess as to what Greenspan will say and even more of a guess to interpret what is said.
Day Trading
Some of our day trades have been working out wonderfully. In a market like we have been in lately, it seems the only way to make money is through day trading. I have been posting some stocks to watch for on the message board over the last week and I will continue to do this until we can get back to our normal swing trading pattern. We may need to stick with this strategy in the short term, and use it to build up our cash reserves while the markets are in no mans land.
Day trading is fast and furious; it is a matter of being in the right stock at the right time. Some of these trades might last all of 15 minutes. Others I may hold for 5 hours. In any case, day trading is strictly for the active trader in front of their screens all day. If you cannot watch your day trades like a hawk, I would suggest that you pass on them.
Volume is Key to Day Trading
Volume is the key to day trading. I will not trade a stock for a day trade that is trading on less than its average volume and I will not trade a stock that is too thinly traded. Day trading is all about momentum, and volume is what causes momentum. As Joe points out week after week in the challenge, volume seems to be the one indicator that many traders either forget about or simply toss to the wind. If you forget about volume, you might as well forget about trading, especially day trading. I like to see explosive volume when I get into a day trade. This high volume implies that there will be fast movement in the stock and extreme volatility. This volatility is how we can make money. Without volatility, there is no price movement from which to profit. I want to trade only the stocks that are moving that day and those are the ones to concentrate on.
Day trading is like “just in time delivery”. I do not want to be in the stock until just before it is ready to move or just after it has begun to move. And then, I do not want to stick around long afterward. I am in and out of the stock quickly. A lot of times, I am out too early as the stock will continue to run after I take my profit. That is okay with me, I have profited and that is all that I can ask for. You will never time the trade perfectly so do not let it bother you if a stock keeps going after you sell it. Day trading is a whole different ball game and you have to be able to let it go and not look back once you make the decision to lock in your profit.
We will continue to provide potential day trading opportunities; it is a great way to make some fast cash. Just remember that day trading can be very fast and there is no time for alerts for day trades. We could be in and out of a stock before your ISP gets the email sent through to you.
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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