The Daily Stock Report April 7, 2009
There was no obvious catalyst for the selling today that resulted in a -2.3% drop in the Dow30 and S&P 500 and -2.8% for the Nasdaq Composite
. The Asian markets are down as high as 3.7% for Hong Kong and the US markets will likely follow them at the open tomorrow. If we continue to get selling, it could turn into an accelerated trading action to the downside and we are right back in the same boat we have been seeing these past 5 months.
This was the type of action that I originally forecasted a couple of weeks ago but lost patience or didnt enjoy seeing the profits evaporate from the last set of stock positions. (That will never happen again!) At the same time, we have to protect against a market bull run or turning profits into losses.
The market still appears to be on a buy on the dip mode and what we want to watch for is if some of these recent long ideas will break that uptrend channel as described in last nights video. Stocks like ARO, Aeropostale looks like such a stock breaking below the lower trend line and this is a bad sign for a long position. This idea was put on sidelines today with the more than expected selling.
This is also a good environment to write covered calls as you expect stocks to go sideways or down while you are holding those stocks long. This is an advanced technique that you should study.
There hasnt been any significant news in several days except for someones comment that banking problems are not over yet. We do have earnings season getting into full swing next week and we are likely to have some earnings warnings or earnings coming well below forecasts. As the analysts catch up with the freefall in profits of stock companies they follow, the erosion in earnings is probably going to scare the market.
As you saw in last nights stock list, the green highlighted banks were short ideas again with many of the same target prices to cover as of a couple weeks ago.
Oil index had a big drop today with a 5.5% drop to close at $48.40. Same pattern of following the indices and likely continues to parallel the market.
REPEAT: Let market pull back before getting too heavy in LONG positions. It could take several weeks before this bottom is well established. Stocks that have been the strongest and pull back the least amount with more of a sideways action are the ones to be watching for long intermediate trades.
Swing Trades: New Ideas: STP, Suntech Power provides electronics for the solar industry. This should be considered as a short swing trade.
ASH, Ashland Chemical is also worth a small short position. Target price to cover is $10.
Day Traders/Intraday stock ideas: Look for drop and pop again and this whole week should be good volatility for intraday trading. Stocks probably will start a period of selling and the pop may be weaker and weaker as the selling continues. Eventually, after days of selling, a big reversal may give the pop more strength. Stay on the long side on the pop but dont buy late in day. Look for good intraday trades in FSLR, ICE, BLK, CME, POT, MON, MOS, AMZN, AAPL, BIDU, USB, WFC, JPM and any high volume, high volatility stocks.
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REPEAT: Many of you have emailed me with questions about not having the $25,000 to do intraday trading. You can have 3 intraday trades in a 5 business day rolling period without having $25,000 in your account. Above $25,000 you can do unlimited intraday trades as long as your account equity is above $25k. You can have swing trades like we have been having the last 2 weeks and make a smaller amount of money, lets say $10,000, to build up with swing trades.
Thoughts: Keep steady, calm, decisive, aggressive. Have no fear and no greed. Keep looking at what to be doing next in a calm manner. Dont focus on the past or beat yourself up what you did or didnt do or what you should have done. Just keep playing the next shot, which in this business your next shot could be just sitting on the sideline.
I am still expecting some sort of substantial rally in the stock market sometime this year mostly driven by the massive stimulus that has already been poured into the system plus the planned stimulus package being proposed now. Longer term though, in a couple years down the road, no doubt the taxpayer is going to have to pay for such the high debt amounts that the US government (and other countries) have taken on. So tax rates probably will rise in coming years, interest rates will very likely have to rise as inflation surfaces and likely the bear market resumes sometime down the road. But we dont have to be stuck in a miserable cycle like most investors. With the techniques and approach to the market, we will still thrive.
If you have been uncomfortable shorting stocks, which most people are, try to learn this technique, it will be a useful tool in the coming years.
Thoughts: Best odds only, be decisive, aggressive, mentally flexible, stay in position size, dont overtrade and wait a little longer to buy and wait a little longer to sell. You will find that will make you more money on your trades. Trade what you see, not what you hope for. Intermediate and swing trades are really important to have trailing stop losses set.
Dont trade unless the setup is there for you, then use the charts to tell you when the odds are heavily in your favor. Dont force anything to work for you, let the setups develop and then take advantage of that. Be patient. Stay in position sizes without letting any intraday trade represent no more than 10-15% of your total account value. As you build your account, your position size percentage should get smaller and smaller to lower your risk.
Have a great day and Ill talk to you this tomorrow.
Mitch King
www.TradeStocksAmerica.com
by: Mitch King
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