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Tuesday, April 05, 2005
Market Recap
Oil dropped almost $1.00 today, closing just above $56 a barrel and down over $2.00 from its high on Monday morning. This drop in oil had the stock market trading up but not by much. In fact, the indices stood still for most of the day. They opened up and stayed up but did not advance at all. Today's range in the market would have put even the most hyper traders to sleep. The Dow had a tight 57 point range and closed up +37 points. The NASDAQ had an 11 point range and closed up +8 points and also closed above its 200 SMA. The S&P had only a 7 point range today and closed up +5 points. With tight ranges like this, the market has no volatility from which to trade. Those that trade the index tracking stocks must have fell asleep at there trading desks.
Plenty of Stocks to Trade
Although I am not impressed with the markets these days, I am finding plenty of stocks with charts that look good for trading, I have a few more new stocks to add to our list tonight. The charts of the indices still look pitiful so it is hard for me to put new money to work right now, but day trading remains an option for those of you who can watch your trades during the day. I continue to find many charts that set up well for possible day trades. There is money to be made even if the market is standing still because there are always some stocks moving no matter what type market we are in. As far as swing trading goes, forget the breakouts because they have not been holding up. Trade the breakouts for day trading only. For swing trading, I would suggest buying the pullbacks of stocks with great charts. An example of this would be the energy stocks in the charts tonight. With oil down over $2.00 the first two trading days this week, the stocks have followed. Many of these stocks have formed bullish flag patterns as a result of this minor pullback. If you can find charts with these light volume pullbacks, these are ideal entries. As oil continues to make new highs, so will these stocks and buying the pullbacks are good opportunities to profit.
Merger Mania Continues
The mega mergers continue with Chevron Texaco announcing yesterday that they are buying Unocal for $16.4 billion. You may remember that back in 2004 I said that I thought 2005 would be a year with many mergers and acquisitions. Since that prediction, there have been countless mergers and it looks as though there will be many more in the months to come. We still have 9 months to go before the end of 2005. Strong companies with strong cash positions are scooping up bargains all around us. It is the after Christmas sale that consumers dream of, but on a much larger scale.
Does History repeat itself?
One word of caution about stock prices and ‘mergers and acquisitions': History shows that stock market tops usually happen when there are many companies buying other companies. Why this is, I do not have the answer because it does not make sense if you think about it. If companies are so smart and are buying other companies because they are inexpensive, you would think the stocks of those companies would be under valued and this would drive stock markets up in price. But for whatever reason, it works just the opposite. Once the mergers and acquisitions finally dry up and are not happening anymore, that is usually the start of bear markets.
Of course history is no guarantee that things will repeat themselves, so take it with a grain of salt. Remember the back in August of 2004; the Republican convention indicator predicted a John Kerry election win. That indicator was wrong. But so far the Super bowl indicator has been correct. That indicator predicted a down year for stocks in 2005 because the AFC team won the super bowl. The year is still young with a long way to go but the super bowl indicator is right so far. One more point about history. That is the whole premise behind technical analysis. TA is based on the history of chart patterns and the probability that what happened before will happen again based on historically price patterns. I am not saying that we should believe that every historical fact we run across will happen again but if you believe in TA, then you believe in the mathematical probability that what has happened before can happen again.
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Earnings Calendar
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