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Thursday, December 08, 2005
Market Recap
The weekly jobless claim numbers were released this morning before the opening bell, reporting an increase of 6000. The futures were down big before this report but immediately spiked on the news. It is funny how the stock market reacts favorably to people being out of work. Of course we know that this means anytime jobless claims go up, this information is used to try and convince the Fed not to raise rates and that is why the market rallies. On the surface, it seems like the stock market hates it when people are working, “Oh my God, people are working, people are finding jobs, what a terrible situation, let's sell our stocks”. It seems ridiculous but this is the mindset of the market due to the cycle and ramifications on the money supply when things are “too good”. The market knows that when things are too good, in steps the Fed to slow things down. That is why the market acts the opposite of the way the news would indicate it should.
So the futures reversed, spiked up, and the market opened higher. It looked like it was going to be a good day for stocks and we entered some new positions. Well, that did not work out so well, as the market reversed on us and headed lower. The futures faked us out this time; we rarely fall for that but shame on us when we do. The Dow ended the session down 55 points, the Nasdaq lost 6 points and the S&P fell 2 points. As a result of today's downside reversal, we were stopped out of some of our positions with small loses.
Half the Battle
This has been a tough market to figure out this year. Nevertheless, we are still performing remarkably well with an overall 35% gain considering all the wild swings the market has taken. The market has baffled most participants for most of the year and that brings up a good point I would like to address tonight.
Half the battle of being a successful trader is knowing what stage the market is in. Over 65% of all trading losses can be attributed to being on the wrong side of the market. It is essential for traders to know how stocks move and when they are likely to repeat, and to understand how this happens in multiple time frames.
The issue is much more than whether the various time frames are supporting long or short positions. Playing the direction is obvious but there are other factors to consider. Playing base breakouts, consolidations, wedges or triangles may not be as easy as they seem under certain market conditions. We have certainly had problems over the past year with these patterns not working like they should. Sometimes they work like a charm, but too many times they fail. The reason is simple. In some stages, bases are likely to break up or down and move exactly as expected. In other stages, bases should be played to NOT follow through. That is to say, the base breakout should be faded (shorted) or in other words, traded to fail. Those that can adjust to what ever stage the market is in will improve their performance greatly
The $64,000 Questions
Different trading styles work better in different types of markets. When a stock starts to fall, should it be bought on a pullback, or should you sell it short? If you are long a stock, do you sell it at the first sign or weakness? If you are raising stops, how and when do you raise them? What do you do when the long-term trend is up, the intermediate-term trend is down, and the short-term trend is up? These are the $64,000 questions that are gold if you have the answers. The problem is that there are so many factors that weigh on these types of decisions.
Stocks repeat and flow through certain stages on different time frames. We have to recognize and identify the characteristics of each of the stages then deploy the strategies that should be played in each stage. The fine art of trading any market to know exactly how and when to enter, and how the stop and target should be determined based on the stages of the market. Even better, is being able to identify the signs of when a stage is transitioning, so you can participate in the new stage at the earliest possible moment.
These are not easy answers but with hard work, experience and education, your chances of finding the answers increase over time. Education is not a steadfast guarantee to success neither in trading or in any business you are involved in. However, failure to get educated on how the stock market works will almost certainly guarantee failure for any beginning trader. It may cost you a little money to get the proper education but remember this, if you think education is expensive, wait until you see how expensive ignorance is.
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:
Please take a moment to read the "How To Use The Bulletin" link at the bottom of the Bulletin page on the website. It is critical you understand 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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