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Sunday, July 24, 2005
Market Recap
It was another reversal day in the market on Friday with the market opening down, then reversing and closing up for the day. This has been the pattern for awhile now and we have mentioned it here before. These reversal days are common occurrences in bull markets. Lower opens and higher closes are signs of a strong bull. We know that the amateur investors will open the market and the professionals will close it. This selling at the open is the main street small investor locking in the small profits that they have instead of letting their winners run. Meanwhile, the professionals sit back and buy the cheap shares later in the day only to have stocks close up higher then they opened. Professionals will buy every pullback and you should be buying the pullbacks also. Do not be fooled by the futures and the lower opens, as more times than not, the market will be positive by the end of the day. Friday, the DOW gained 23 points, closing near its highs of the day and up 63 points from the low of the day. The S&P climbed from the opening low and closed up 6 points. The NASDAQ lagged on Friday, gaining only 1 point but came up 14 points off its low of the day. The RUT gained 10 points and closed at the high of the day and is at new 52 week highs as small cap stocks continue their relentless advance.
10% Instead of 5%
Since we are clearly headed into a bull market, we have decided to take the STHQ portfolio up to 10% per position. The reason for this is because we rarely have 20 open positions in the portfolio at a time. This is causing us to have idle cash that is not being put to work. By raising the allocation from 5% to 10% in each trade, we will ensure maximum use of the cash. This will also accelerate our rate of return. The portfolio allocation change will be effective on August 1st. This means that until that date, any trade we make will be 5% of the portfolio balance. On August 1st, and thereafter, every trade we make will be 10% of our portfolio balance. We will have a maximum of 10 open trades at a time and if we feel strongly about any more, we will be on margin for any additional open trades.
How to Play the Shake Out
We recommend that if you are comfortable trading with the 5% allocation, that you please continue to do so. Remember, the more we have in a position, the more we can lose if we are wrong. With this new 10% allocation, it is imperative to stick to tight stops of no more than 2 to 3% on any one trade initially. Once the trade moves up and you have a gain, you can widen the stop to give the trade some breathing room. Remember, we do not want to stop out of strong stocks because our stop is too tight. Shake outs are common in bull markets, the key is to watch the volume and not sell during the morning pullbacks. Friday was a classic example of bull market shakeout action. Many stocks fell hard on low volume and came back to close in the middle of the daily bar or higher. It is a tricky situation especially when you have a 10% position instead of 5%. If you are planning to sell, the best thing to do is to watch the volume and wait until later in the day to sell. If the stock cannot bounce in the afternoon and looks like it will close in the lower half of the daily range, then to be safe, you should probably sell it.
The Chart Parade
We have several charts for you tonight including updates on the indices. I think this is a record on how many charts we have shown in one night. 28 charts! “Are you ready Ski Daddy?” LOL. Enjoy.
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
Please vote for us once a day at stockcharts.com.
http://stockcharts.com/def/servlet/Favorites.CServ...
Thank you all for voting.
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