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Wednesday, June 15, 2005
Market Recap
The Federal Reserve released its beige book report today and it showed inflation to be tame. With that news, buyers started to show up in the last couple of hours. This enabled the markets to close in the green after being down earlier in the day. The DOW was up 18, the NASDAQ up 5, and the S&P closed up 2 points. Summer volume was light but the indices are looking better technically on the charts as they build solid bases. I like the way the charts are shaping up here and today we started buying some stocks as I felt we were not as long as we should be in this market. We want to be ready in case the indices break to the upside, out of these trading ranges. I have charts of the indices tonight with an update on each along with charts for the leading sector in this market, the Home Builders.
The Home Builders
Three months ago, we bought the Home Builders when they were making new highs on March 7th. At the time, I said that we needed to be in the market leaders. Just after we bought, these stocks started to correct, as all leading stocks do at one point. I tried to stay with them through the correction because I believed that they would bounce back and did not know how much they would correct. Finally, after many emails from angered subscribers, I sold the stocks for 10% losses just ten days later. I succumb to the pressure of emails against my better judgment and that was wrong. These stocks were only down to shake out the weak hands. These individuals who emailed me were part of the weak hands. I knew that we should have held but I sold because at the time, these stocks were a burden to our portfolio. What is done is done, there is no taking the trades back now but I wanted to bring up a point about market leading stocks tonight. These leaders were not finished going higher. As it turns out, they are now at new highs for the year. If we had just held, we would be in good shape right now and the portfolio would not have suffered these losses. I have charts of these leaders tonight so you can see where they are now as opposed to when we were shaken out.
A Lesson Learned, I Hope
Always remember that market leaders are market leaders for a reason. They have their pullbacks but most of the time a market leader will come back and challenge the highs of the year again, at some point. They may not break through to new highs but they will retest the highs a second time before eventually rolling over. This is called a double top. These leading stocks may come down from these levels and if that were to happen, it would classify as a double top. However, they could blow right through these highs and keep running as some are doing now, as shown in the charts. Or, they could pullback again and go through the same cycle and challenge the highs again for a third time, creating a triple top. We just do not know at this point.
The point of this commentary is to remember the leaders. They do not just die after leading the market for so long. They eventually die but not on the first attempt. The shakeout we sold at was the first real pullback that this group had. Most of the time, this first pullback is only temporary and for this group, it certainly was. Look at other leaders in this market move like CME, SHLD, WFMI , UNH and all the energy stocks, just to name a few. They all pulled back after making new highs only to bounce right back and make new highs again. My favorite stock (I will not mention the symbol) is in the same boat right now but like all the rest, it too will eventually bounce back and retest its previous high. Lets not give up on the leaders; they deserve much more respect than for us to just cave in on the first pullback.
We had a lot of cancellations over the home builder trades but I hope that if there are any members left that emailed me about these trades, that you have learned a valuable lesson. We should have stayed with these stocks. Buying the stocks was not the wrong trade; it was selling them on the shake out that was wrong. We sold with the crowd, the weak hands, which is just what the professionals wanted us to do. A lesson learned, I hope. We need not do this again.
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
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