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Thursday, October 06, 2005
Market Recap
The vicious selling continued today and got heavier as the day went on, but the markets pared their losses in the final hour of trading. It could have been much worse but buyers showed up in the last 30 minutes to lift the DOW 60 points off of its lows of the day. This was a nice bounce off the lows and was much needed. This could have been short covering, we do not really know yet. What we do know is, this is the third big distribution day in a row and charts of the indices have suffered severe technical damage. Today, the DOW lost 30 points, not bad after being down 95 at one point. The NASDAQ lost 18 points and the S&P was down 5 points.
Everything that ran up big is getting clobbered and there are many who chased the momentum without proper stops in place that are now left holding the bag. Here is something that I do, just to confirm that I placed the right stop. After I am out of a trade, I leave it in my E-signal portfolio for 2 days because I want to check out the follow through action. Try this sometime. Let me tell you, all those momentum stocks I have been listing as day trades have dropped like a rock, with some down 15-20% from their highs. If I had not had stops in place, I would have been crushed. Stops are a must, I cannot say it enough. You never know when the market will turn and this week it has made one of the most abrupt turns that I have seen in a long time. The relentless selling in the recent leaders and momentum stocks is a major red flag in my book and its best to get out of the way. Keep in mind that the market is very oversold and due for a bounce. Some of that bounce may have started in the last hour today, so shorting stocks would only be advised after we get a much bigger bounce back up to some resistance levels on the indices.
The Blood Bath
Weeks like this in the stock market can be demoralizing to traders who see profits disintegrate, stops hit and stocks under distribution like they have been all week. It is precisely at these times that we must harden ourselves and not give up in disgust and self-loathing. Your emotions are your greatest enemy in markets like this.
The markets giveth and the markets taketh away. The markets do not care who we are, what we own, how much we need the money to put food on the table or anything else about us. The only thing that matters on days like we have had this week is that we have the strength not to quit. Do not quit, that is what the big boys want you to do. They want to wash you out so that you leave your money with them and walk away, like many of the millions of losers have done throughout market history. I have said before that the market is our friend because it is filled with opportunities but it is only a friend to those who respect and understand it. For those who do not, the stock market is set up to separate them from their money. That is its only purpose. It is not there to make the little guy wealthy, its there to make the already wealthy, wealthier. It is a vehicle to transfer wealth from the majority (small investor) to the minority (wealthy investor). Very few people on a percentage basis ever get wealthy in the stock market. However, I believe we at STHQ can be part of that minority of winners.
Addiction to Misery+
Waiting is among the most difficult things for a trader to do but is essential for success in trading. Every day there are traders who are desperately looking for the next trade. The greatest lesson they can learn is that patience is needed and will be rewarded, whereas addiction to trading will result in even more losses as the trader hunts for and forces trades that they should not be entering. Chasing the next trade is just accelerating the next loss when you “just have to make a trade”, no matter what the market conditions are. It is an addiction to misery, you might say, and is so commonplace these days.
I often wonder why people do not see what is right and good for them, and instead turn blindly away and embrace something that is so desperately wrong and potentially destructive for themselves and those around them. They continuously make the same mistakes over and over and have throughout the history of the markets. This is why Technical Analysis (TA) through chart pattern recognition is so important. These chart patterns are for the most part very reliable because human nature does not change. The chart pattern shows the trading habits of the masses over time. People make the same mistakes time after time and these habits are shown in chart patterns.
It is those who do not panic and continue to believe in themselves who will survive to trade another day. Be strong, persevere, never give up, and you will be rewarded. Continue to see opportunity where others see only chaos and panic. Misery and mediocrity love company, and there is plenty of each to go around both in the markets and in life.
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
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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