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Thursday, May 26, 2005
Market Recap
The first quarter GDP numbers came out today and were revised upward. The Chicago Fed governor stated today that the economy is “through the soft patch”. The CEO of CAT was quoted as saying, “US business confidence was very strong”. Home builder TOL came out and said pricing power was strong and they raised full year guidance. All of this great news had stocks rallying again today after that brief pause yesterday. The DOW was higher by 80 points, the NASDAQ gained 21 points, and the S&P was up 7 points on the day.
There is a record high short interest in the market right now. There has never been this many shares short in the history of the markets. Either there is going to be one heck of a fall or one heck of a short squeeze soon. With the good economic news out today and the market steaming along like a well oiled machine, I have to believe it will be the latter. I do not think that the specialists are the ones with the heavy short positions, given the chart I that showed the other night. While shorting stocks is still done by the minority of market participants, I believe the majority of the short positions right now are held by the average investor who thinks he has learned enough about the market to graduate up to the short side. Shorting is new for him, he thinks he has found a way to try and make money and out smart the market but he is going to have his hands full if the professionals decide to squeeze him out.
Technical Analysis First, Fundamentals Second
A question came up about my fundamental comments on GOOG yesterday so I wanted to clarify a few things concerning my use of fundamentals. Technical analysis is the mathematical probability for the movement of a stock. I think that everyone knows by now that my trading entries are based solely on TA. I want to focus our attention on the technical indicators and the charts first and foremost, before any fundamental analysis comes into play.
When I am day or swing trading, I could care less if a stock is producing revenue or losing their collective shirts. It just does not matter to me because I do not ever plan on holding the stock long enough to have the earnings matter. If the chart has formed a pattern that has a high probability of price going higher, I will enter the trade long, with no regard for what the company even does for a business. This goes against the very nature of most investors who are looking for solid businesses with good earnings and growth. Companies who make money and have solid earnings are what they buy and what they hold. The problem is that you can sit on a stock for years and never really see much appreciation in value. MSFT, CSCO, ORCL and many others are recent examples of this point.
You can ignore fundamentals if you are going to swing trade but you cannot ignore technical analysis if you are planning a long term buy and hold. To clarify, TA will help you tremendously in the timing of your entry point into the stock that you wish to invest in. There is no point in getting in early while the stock is not going anywhere or even worse, still going down. By using TA, you would not have money tied up in a dead stock, waiting for it to begin moving up. TA can be used to identify the proper time and entry point for your purchase. Fundamentals will not be of much use if you plan to hold a stock for a few days to a week. If you ignore the technicals on a stock that you plan to hold for a while, you may just have a disaster waiting to happen.
The moral of the story is that I will continue to use technical indicators as my bread and butter. When I find a company with strong fundamentals after I have identified an entry based on TA, then that is a very nice bonus. This is what I found in GOOG. I am not going to beat a dead horse on GOOG here. I am just making the point that fundamentals are good but TA is better for me personally. GOOG has great fundamentals but if, for some reason, the chart breaks down and my TA says to sell the stock, I will sell in a heart beat with total disregard for the great fundamentals. I love GOOG today, but I could hate it tomorrow based on the chart. Call me a flip flopper, but I flip with the chart and it usually makes or saves me a lot of cash.
Reminder
Monday is Memorial Day and the stock market is closed. There will be no bulletin on Sunday evening. The next bulletin will be on Monday evening.
STHQ Chart Index
If you go to the chart index in the left side menu, you can review and study charts that we have annotated for each stock listed in the past.
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.
Earnings Calendar
We have added the earnings link for each stock on the bulletin. To access the link for earnings, you can either use the link below or click the link on the bulletin for the corresponding ticker. Click the online bulletin in the left side menu for access to the earning calendar for each stock listed. It is not recommended to hold a position through earnings. You can always buy the stock back after the dust settles.
http://www.earnings.com
Stockcharts Listing
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