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Monday, August 22, 2005
Market Recap
Big time volatility to start the trading week as the market was all over the map today with a 100 point swing in the DOW. The DOW started today with a 75 point gain near the outset but that gain quickly deteriorated as sellers came in, took control and a reversal ensued. This heavy selling took the market all the way down and into the red before some late day buying helped the indices close green for the day. The markets rebounded from the midday setback and the DOW managed to close up 10 points, while the NASDAQ gained 5 points and the S&P gained 2 points.
Day Trades
This is the kind of volatility a day trader loves but for the swing trader, it is not so good because it is hard to pick an entry that we would be confident with holding through this market turbulence. Our day trades today were phenomenal, having one of our best days of the year. We quickly went long at the open and took advantage of the strong moves in the day trade stocks, at the same time alerting our members that we felt the market was not going to stay strong all day. We sold most of our long day trades for a nice profit when the selling came in and held the short positions for even more profit. We posted day trades in SYNM, RIMM, GENZ, EMMS, ISRG, UTHR, and shorted ANF, CECO and SEPR. All and all, it was a very good day for the day trading, if you watched our message board for the trades and updates.
Record Short Interest
There is record short interest in the SPDR's and the QQQQ's, not to mention many of the individual stocks on the NYSE and NASDAQ. This short interest is confusing because short interest is usually high when the VIX is also high, indicating panic in the market. When the short interest is high along with a high VIX reading, it is usually safe to take the contrarian view and go long with the market, figuring that the high short interest and high VIX reading is a signal that the market is close to a bottom and a reversal to the upside is imminent.
The VIX reading is only 13, far from any panic level. This high short interest with the low VIX reading is puzzling and for this reason, we may not want to jump the gun on that contrarian view. The high short interest could merely be big hedge funds shorting “against the box” and as a result, the high short interest could be misleading. I am willing to guess that most of this record high short interest is in deed hedge funds. Still, the contrarian view cannot be ruled out altogether. The hedge funds “against the box” theory is just that, a theory of mine and I have no way of confirming it to be true so the contrarian view cannot not be ruled out.
An example of this contrarian view is housing stocks like RYL for example, have very low short interest. Again, taking the contrarian view, these stocks should go down because nobody thinks that they will, hence there is very few people short them. As you can see, as short interest fades in these stocks, they are now going down. When short interest was high in the housing stocks a couple of months ago, they kept going up, washing out anyone who tried to pick a top. This is just another example of how the market works against the masses and does the opposite of what the majority expect. The bottom line is that when short interest is high, we want to be long, when it is low, we want to be short. The only puzzling part of this picture is the VIX. Why is the reading so low with the short interest so high? That casts doubt in the contrarian view and is the only reason we have to be cautious before we load the boat on the long side. For now, we have to just keep trading like we are trading and locking in the quick 10% gains until the market tells us what its next move will be.
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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http://stockcharts.com/def/servlet/Favorites.CServ...
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