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Sunday, May 08, 2005
Market Recap
We would like to wish a Happy Mothers day to all of our STHQ trading Moms. We do not say it enough but we all appreciate all of the things you do for us in our lives. Without you, none of us would “have a life” and I mean that literally. You are very special and I hope you all have a wonderful day.
Great employment numbers on Friday that had the futures soaring in pre-market and stocks gapped up at the open. Our pre-market alert cautioned against rushing in with the crowd because we thought we would see some selling pressure at some point in the day. Selling pressure, because the market had a good week and profit taking was bound to happen after such a nice run-up on a Friday afternoon. Also, the indices where at a resistance level and of course there is always the “sell the news” scenario. Indeed, selling did occur and the DOW gave back all of its opening gains and closed barely up 3 points. The S&P lost 2 points and the NASDAQ gained 5 points and was the strongest index on Friday.
All and all, the market basically closed flat for the day, after a super employment number which should have had the bulls taking control of stocks but instead, the bears put up a fierce battle and ended up winning on the day. I say winning because this close, after being way up in the morning, is a win for the bears as they were able to take back the gains the bulls could not hold. Someone asked, “why they don't just get rid of the futures because they do not ever accurately predict which way the market will go”. Well, they do accurately predict where the market will go for the first 5 minutes of trading, and after that, they do not matter. This is because the amateur traders open the market so they would not ever get rid of the futures. It is just a tool used to fleece the average trader. I say again, do not rely on the futures to predict market direction.
Update on Short Positions
The short positions seem to have some people upset with me and that is understandable. As I have said before, stocks do not go straight down; they bounce from over sold levels. When they bounce, we have two choices; we can stop out at a 2% loss or we can hold if we think the bounce will not be large and if we think the market is going down. I chose to hold my shorts because I did not think the market would bounce as much as it did. I attempted to give my explanation for these short positions on the message board Friday when someone seemed upset that I did not send alerts to cover at the 2% stop loss. I will attempt to explain my position again tonight.
The 2% loss rule should have been adhered to, but that is easy to say now after the fact. In hindsight, we know this now after reading the chart from the extreme left. It always seems easy when reading from the left, doesn't it? When reading the chart from the extreme right and not knowing what will happen tomorrow, it is a little more difficult to predict stock direction. I held my short positions because the charts of the big three indexes all had bear flags. I did not want to get stopped out with a 2% loss, then have the indices fall through the flags and drop the stocks that I just stopped out of down to new lows. In hindsight, I wish that I had stopped out but I did not know that all of this good news was going to come out and support the market.
I stand by the charts and right now the charts of the indexes are still not out of the woods, we could easily see a re-test of the lows in the next couple of weeks. There are many indicators that I watch that are still negative with regards to these positions. I believe this is just a mini rally in a bigger down trend for these stocks. I have updated charts on the short positions tonight so you can see why I have not covered yet. I hope you will understand why from a technical stand point, it wouldn't make sense to cover these now for a loss. We have a lot of charts to cover tonight so let's get to them.
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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