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Tuesday, April 12, 2005
Market Recap
The Federal Reserve released the minutes of their last meeting today and they called for measured rate hikes going forward. Wall Street liked this news and interpreted it as the Fed would be less aggressive going forward. Some had expected a .50 basis point rate hike during the next meeting but these minutes released today all but stifled that notion and buyers flooded the market with massive volume. The DOW had been down almost 100 points at 2 PM EST when the Fed released the news. Then, the DOW staged a massive turn-around and rallied over 150 points off the lows of the day to close up 59 points and back above 10500. The NASDAQ closed with a gain of 13 points and is now back above 2000 again. The S&P gained 6 points.
“It's Never Over ‘til it's Over”
Never count the bull out until the DOW, NASDAQ and S&P close down below the 200 SMA. This is the area where massive bounces in the market happen and today we got a massive bounce, to say the least. The DOW dipped below the 200 SMA Intra day and caught the bears thinking that this was going to be the beginning of a market collapse. I also believed that the DOW would close below the 200 SMA but we did not close our long positions because, until the markets close below the 200 SMA, you cannot count out the chances of a rally off the 200 SMA. As I have mentioned before many times, the 200 SMA is the breaking point for any stock or index and as long as it remains above it, it is still considered long term bullish.
This 200 SMA line is the area where a stock or index bounces very strong when touched and we got the massive rally that usually comes when indexes hit this area. Today, the DOW fell below the 200 SMA and then briefly bounced above it. It could not find any buyers so it fell below it again and tested the lows of the day. When it failed to make a new low, this was the test and it held up. Right around this same time, the Fed minutes were released and the market suddenly was flooded with buyers as volume surged. Oil was down $1.85 and closed at $51.86. This may or may not have added fuel to the rally because lately, Oil has not mattered in stock direction as it should.
Ah, Those Coordinated Institutional Buying Surges!
A massive relief rally today as big money (institutions) started swallowing up shares around 2 PM EST. Isn't it funny how this Fed news is released, just as the DOW is about to close below the 200 SMA. The game is stacked against the retail investor. Just when you think the market is on the brink of collapse, the institutional buyers start to swarm in with big volume to wash away the retail investors. It was a massive relief rally that included one heck of a short squeeze. The institutions that were short started to cover and lock in the profits from the recent downward trend. I have got to believe that these institutions are collaborating together and identifying price points where they will start to buy. Once they do this, it becomes a coordinated effort to crush the retail investor's who were either short or finally sold their last long shares because they could not take the pain of anymore downside. It is hard for the retail investor to beat the big boys when the deck is so stacked against them.
The Hammer Close
As you would expect, there were many stocks today that closed with bullish hammer candles. This pattern normally signals a reversal in direction. This is a great sign, although the indexes still look rough technically, bounces have to start somewhere, and the 200 SMA is a great place to start a rally and a new uptrend. It is too early to tell if this rally will last but a good follow through day tomorrow will go a long way in repairing the charts.
Remember, all good charts were ugly before they looked good. They have to start to repair themselves at some point. Hopefully, we are at that point. When the indexes are at or near their 200 SMA, it is the ideal time to try and bottom fish the index. To clarify, this is the time when I look for strong stocks. If a stocks are strong when indices are forming a bottom, these are the same stocks that will have powerful moves up as the indices start to move back up.
Important Announcement
There will be no bulletin or commentary the week of Apr 18-21. It is spring break and I have a trip planned with my family. This is the first vacation that I have had since September 2003. I will do a bulletin on Sunday Apr 17th and the next bulletin will be the following Sunday Apr 23rd. I will miss 5 trading days and 4 bulletins but will have stop prices listed in the Sunday bulletin on any positions I leave open. If those stop prices are reached, Mike Serven will send the sell alerts.
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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