30 Mar the Daily Stock Report

Fear has returned to the markets so the few weeks up the uptrend is decisively broken in all indices. The Dow30 was down -3.27%, NASDAQ Composite -2.81% and S&P-500 down 3.5% for the day. These types of sharp down (or up) days are usually signals that a downtrend is beginning and can be reliably used as a sign that more selling is to come in the coming weeks.

Asian markets opened up slightly and have sold off in the last 5 hours to negative territory. It may be that Asian stocks get de-coupled from our markets with the news on North Korean having a missile on the launch pad and using the US journalists as bargaining chips. Japan, US and South Korea have sent warships to the region.

Now the focus for us is to watch how far down this pullback is and since the news has primarily been the sentiment indicator to watch, we will continue to watch for a change. Try to remember this-- that in a steady uptrend in a good bull market (or a bull run within a bear market), the environment is one of a complacent, comfortable and stable environment with up days that are small and sustainable.

Toward the end of a bull run, investors and money managers are almost lulled into thinking that there is nothing that could go wrong and the sentiment shifts that 65% of investors, advisors and managers believe the bull market will continue. That is the ideal time to start selling your long positions when an extended bullish sentiment actually causes an overbought situation.

The opposite is true that the “peak time of fear or despair” is the time to start buying. We are not near either one of these extremes but we are still currently looking for this correction to turn into a shallow pullback that stocks could rebound and possibly catapult off of to higher highs made last week.

We continue to add to the “dream team” stock list of candidates to buy long. Mostly they are made up of intermediate term trades with some swing trades and in sectors that were strong these past months.

The most likely scenario is a shallow pullback that may have started Friday and if we get several down days with a couple of them starting to scare investors again, then it could be we have more than a shallow pullback.

The housing stocks started turning down and the SRS, Proshares Ultrashort Real Estate ETF spiked today by 9.4%. We are likely to see more declines in the housing stocks with LEN, Lennar reporting below expectation earnings after the market.

Oil moved down sharply with a 6.7% drop to close at $48.55 per barrel for light sweet crude. A little more attention on oil prices but this is likely a good opportunity to consider long positions on this bottom.

Intermediate Trade Positions: No new positions; holding short positions in banks and insurance companies. We will be adding to the collection of stock ideas below to consider buying long after pullback is completed: Keep studying these stocks, charts and fundamentals.

UTX, United Technologies (Swing)
MA, Mastercard
IBM, International Business Machines
TNH, Terra Nitrogen
BIDU, Baidu
AMZN, Amazon.com
BMC, BMC Software
RAX, Rackspace Hosting
SY, Sybase
RIMM, Research in Motion (SWING)
CIEN, Cienna
CREE, Cree Inc
DIOD, Diodes (semiconductor)
SWKS, Skyworks (semiconductor)
UEIC, Universal Electronics
RADS, Radiant Systems (SWING)
SWHC, Smith & Wesson
FCX, Freeport McMoran
GS, Goldman Sachs
MS, Morgan Stanley
MRVL, Marvell Technology
WFR, Memc
S, Sprint
GOLD, Rangold Resources
CMG, Chipotle Mexican Grill (MacDonalds subsidiary,SWING)
BKE, Buckle Apparel
ARO, Aeropostale
DNR, Denbury Resources (Oil & Gas)
NOV, National Oilwell Varco
PBR, Petrobras
USO, US Oil Index ETF
DBC, Commodity Index ETF
GSP, Total Return Index ETF
SMH, Semiconductor ETF

REPEAT: Let market pull back before getting too heavy in LONG positions. 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: Keep waiting longer: BIG, Big Lots discount stores. This is not ready yet, wait until pullback is over.

Day Traders/Intraday stock ideas: Look for a bigger drop with the negative opening and take longer with more patience before buying any pops tomorrow. 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. Note FSLR was up on renewed interest in solar stocks and a contract awarded to FSLR.

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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, let’s 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. Don’t focus on the past or beat yourself up what you did or didn’t 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 don’t 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.

When I list several stocks from the same sector, like the housing industry for example, don’t short all of them unless you are well diversified and it represents a small percentage of your total stock account (in that same account).

Thoughts: Best odds only, be decisive, aggressive, mentally flexible, stay in position size, don’t 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.
Don’t trade unless the setup is there for you, then use the charts to tell you when the odds are heavily in your favor. Don’t 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 I’ll talk to you this tomorrow.