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Wednesday, April 13, 2005
Market Recap
It is all gone, they gave it all back. Remember that 160 point swing on the DOW yesterday? Gone today, just that fast. Yesterday turned out to be nothing more than a big bull trap. The bears caught the bulls in the trap and took them for a ride to the downside today.
Oil was down $1.64 again today, down 7 days in a row and down 11% since it hit a high of $58. This slide in oil did little to help stocks as the DOW tumbled to another triple digit loss, closing down 103 points. The NASDAQ was beaten to a pulp today, losing 31 points and the S&P lost 13 points. Downside pressure in the markets were obvious in the advance/decline line down volume out numbered the up volume by a 5:2 ratio. Tonight I have a chart of the VIX which turned up today. This trading tool measures the fear in the market and the higher it goes, the more fear there is. When it reaches levels of between 17 and 20, the fear is greatest and that usually signals a bottom in the market. We are nowhere near that level yet on the VIX so my guess is that there is still more downside left. When fear is greatest, we will see it in the VIX and after all the weak hands sell their last remaining shares, the market will bottom. A reading of 17 on the VIX will be our signal that we are getting close.
Oil Reserves Up
As if we needed more proof that consumers have become accustom to $50+ oil, we got it today. Retail sales figures were released today and they were positive again. With oil down to around $50 a barrel, coupled with that massive rebound in the stock market yesterday, I would have expected the markets to react quickly and decisively to the upside but it did not happen. There was absolutely no follow through buying today, a big negative signal in my book. There is just no buying conviction at all in stocks right now.
Oil was holding its own today until 10:30 Am EST, when the oil reserve numbers were released. This data showed inventories had risen significantly higher than expected and the oil futures plunged on the news. There was also more news out that oil consumption figures for the rest of the year should be less than originally expected. Oil prices have a strong tie into consumer confidence numbers. When oil is up, confidence is down. When oil is down, confidence is up. So goes confidence... so goes the markets, generally. Stocks should have rallied on this news but failed to do so.
Has Oil Topped Out?
Funny how ever since the ridiculous Goldman Sachs price target on oil ($105 a barrel) was released 8 trading days ago, oil has done nothing but go down. I remember back in the Internet bubble hay day, when analysts were coming out with crazy $1000 price targets on $400.00 stocks. Those targets were never reached and looking back on it now, those ridiculous targets signaled a market top. Could this call by Goldman Sachs give us the same signal that oil has topped out? It is something to think about for sure.
Congress Is At It Again
Congress is burning the midnight oil, trying to come up with ways to reduce the national demand on fuel. This latest idea puts an interesting twist on the issue.
http://www.cnn.com/2005/POLITICS/04/07/daylight.sa...
Daylight savings was originally intended to shift the clock in order to allow for more harvest time for farmers. A shift is now being contemplated to allow for more "farming" of business hours. The sun rises and sets like clockwork each day. So they want to manipulate the clock in order to gain more hours of workable light. Office buildings use a lot of energy during their business hours, particularly those businesses who work into the evening hours. When it gets dark out, all of those lights come on to allow for more hours of productivity. So from that stand point, it does make sense to roll back the clock in order to allow for more daylight.
Big Cap Oil, Small Cap Alternative
This is just the start of many “innovative" ideas on how to reduce the national demand for fuel products. I am sure we will also begin to hear more of a push for alternative methods of generating the power that we require. Alternative energy stocks should be heading higher with the rise is fuel costs but so far they are not moving up. These alternative energy companies have a good concept and good products but so far there has been no demand from the public and therefore no earnings.
These companies are just small cap companies with an idea. Big oil companies are much too powerful for these small players. The industry will not let alternative energy be the answer, the big oil companies will not let them survive. If alternative energy is to survive, you can bet the big cap dominate players will crush the companies like FCEL, BLDP, and so on by taking them over or buying them out. Why buy a worthless company with no earnings? Its not going to happen, the big oil companies, if interested in alternative energy, will get the technology themselves and pursue the endeavor. In my opinion, this is the reason why the stocks are not advancing. The market knows that they do not have a chance when competing with big cap oil companies.
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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