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Sunday, July 31, 2005
Market Recap
A round of profit taking came into the market on Friday after a solid month of July. July of 2005 was the best July in over ten years for the market. Considering it was the last day of the month on Friday, we could have expected that sellers would be locking in some profits after that great month the market just had. The Dow lost 64 points and the Nasdaq and S&P lost 13 and 9 points respectively. We mentioned last week that the Nasdaq had some tough resistance to get through at 2200 and sure enough, when it hit that level on Friday, it was quickly turned away as sellers came in when it hit that level. The high of the day for the Nasdaq was 2201 and that was all it could muster.
The charts of the indices are looking good. However, I did notice that they closed at their lows of the day and as a result have printed what could be a reversal daily bar indicating the market could head lower for a small correction to this fabulous rally we have had recently. The market is in no danger in my opinion but even bull markets have slight pullbacks every so often so if we get a slight pullback, do not be surprised.
July was Great
The Indices were able to put together a great month of impressive gains. Once again, it was the technology, biotech, small caps, housing and energy stocks leading the charge higher, which allowed the Nasdaq to reach new 52 week highs on Friday and of course lead the Russell 2000 small cap index to all time highs. All this happened in the month of July which is normally a slow month for the markets. Gains were broad-based also, allowing the S&P 500 to reach its highest level in 4 years. The overall tone of the market has been very positive. The advance/decline line has been very good and this breadth shows the underlying strength in the market. Also, every pullback has been met with buying interest. This comes despite the overbought condition the markets have been in lately, which was quite bullish and shows the resiliency of the bulls right now.
The Reason For The Rally?
The action seen in stocks over the last month has been the result of the anticipation of earnings season and the super earnings that were expected to be reported. So far, earnings have been super and the market had forecasted this prior because this rally started well ahead of when the reports started to be released. This rally in my view is a clear indication of positive earnings and economic numbers to come. The overall market moves well ahead of news and this market move we have seen lately is a result of news we do not even know about yet. We will know the reason for this move in a few months. When broad indexes such as the Russell 2000 and S&P 500 are breaking out and being confirmed by market breadth, it is usually a good time to be long stocks. Whether it is the possibility of the Fed stopping their tightening; much lower commodity prices to come; or the continuation of the housing boom, there is likely some positive catalyst ahead that we will find out about, after the stocks have moved in advance of this news.
The current overbought nature of most indexes warrant's some caution in the short term. However, it would likely pay off to use weakness as an opportunity to add some quality stocks to your portfolio.
Market Outlook
I do not like to predict targets on the indices but I believe if the Fed is done raising rates this year, then the Nasdaq could hit 2500 before the end of the year and 3000 by the end of 2006. This would only make good sense if the Fed is truly done.
The RUT? Who knows where that's headed. It is hard to try and predict a target for an index that is blowing through all time highs like it has done lately. All we can say is, small caps are the place to be and they have been. They are all we have traded since the inception of this service and for over two years now, it has been nothing but up for the RUT. Check the chart, the proof in what we have been saying all along can be found right there in the chart.
Reminder 10%
We will now be trading with 10% in each position starting tomorrow. The STHQ portfolio currently has 9 open positions with 5% in each position. This means at 5% per position, we are currently 55% cash and 45% long. This means that going to 10% per trade, we have room for 5 additional open positions before we are 95% invested. As the existing 5% positions get closed out, our goal is to get down to 10 open positions at 10% per position. This will happen over time and if we decide to have more than 10 open positions, (or more than 15 while the 5% positions are still open), we will be on margin.
The Chart Parade For 31 July
We have a ton of charts tonight again as there are so many setting up for nice advances. Lets get to them now.
STHQ Chart Index - If you go to the chart index in the left side menu, you can review and study charts we have annotated for each stock listed in the past.
Earnings Calendar
We have added the earnings link for each stock on the bulletin. To access the link for earnings you can either use this 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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For New Members:
For all 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 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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