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Wednesday, October 19, 2005
Market Recap
The whipsaw action continues as the market had a tremendous reversal just after the Fed Beige book came out at 2 PM EST. The Dow gained 128 points after being down nearly 60 points early in the day. This 180 point swing was an amazing reversal and volume did accompany the buying so it got the attention of the bears. The Nasdaq gained 35 points to close back just 9 points shy of 2100. The S&P gained 17 points, and it is all the way back up near 1200 again just that quick. For those of you shocked by this major reversal, you are not alone. We were shocked as well, but considering the nature of the oversold market and the way the market has acted in the past when in this condition, we really should not have been surprised at all. We have been saying the market was over sold and a rally was due, it was just a matter of time before it was to happen.
Reversal?
We mentioned in the pre-market alert this morning to expect some wild swings because of this data due out today from the Fed and the fact that it is options expiration week this week. The market is swinging wildly going from bullish to bearish and back to bullish very quickly these days. Charts look as though they are breaking down (bearish) only to bounce back above trend lines and Moving Averages with hammer reversal candles (bullish). For example, the Nasdaq yesterday closed at its low of the day on strong volume and was dropping out of a bear flag. Today, it closed up, with a bullish engulfing reversal candle and back above its 200 SMA. This one day turns the Nasdaq from extremely bearish to somewhat bullish, and in this type of environment, it is very tough to trade. We need a trend to swing trade otherwise your best option is to day trade. Right now, the market is in gridlock, it will let neither the bulls nor the bears win. This reversal looks good right now, but remember the resistance levels to watch for are 2100 on the Nasdaq and 1200 on the S&P. Believe it or not, you could almost make a case for the bears to be shorting into those resistance levels.
Many Got Caught
I can assure you that you were not alone if you got caught in this reversal today. Many of the professionals on Wall Street, mainly hedge funds were also caught in it as well. The only thing you can do when something like this happens is admit that it is happening and get out of the way. If you stay in your trade because you cannot believe what is happening, you will get crushed. You cannot hope for things to go your way. You must stop out of your trade and re-group with your cash preservation. You have to keep an open mind and be ready to change direction on a dime when things turn against you.
Did you Trade or did you Hope?
We have to go with the trend and until today's reversal, the trend was down. Now the market may be reversing to the upside and today is a great example of being disciplined. What did you do when the reversal came? Did you stop out of your short trades or did you refuse to believe what you were seeing and go into “hope” mode and wish you were right? Things went against us on the short side and we immediately cut the losses to 2%. We did not like it at all, but the market could care less if we like it or not. The fact is, it happened and we had a choice. We could sit there, do nothing and watch our portfolio value decline or we could follow the trading plan which calls for getting out of trades once the momentum has shifted against us.
Disciplined
As far as day trades go, we nailed the downside at the open with the day trade watch list and most of those stocks had huge gains to the downside before the market started its reversal. My stops were in place to protect my gains and it was an overall profitable day even though I was stopped out of a couple trades with small losses. You must have the fortitude and discipline to follow your trade plan and protect your capital for major loss. Stop loss orders are the only way this can be done.
EBAY Blew It
Even after this nice rally today, earnings after the bell from EBAY were disappointing and the stock is down $3.00 in after hours trading. Just when we think we may get a follow through rally tomorrow to add to today's gains, EBAY comes out with a bombshell after hours. So maybe the indices will hit those resistance levels mentioned above and stall. It will be interesting tomorrow and Friday with GOOG earnings Thursday and option expiration on Friday. Put on your trading helmets because it could be one rough ride over the next couple days.
Charts
Because of the strong reversal and erratic market, there are no charts tonight. Many of the short set ups were damaged with today's rally and we will have to wait to see how the charts set up. Many of the long charts that were looking good were damaged in the last sell off and have not yet set-up technically for entry.
Stockcharts listing
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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
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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