31 Mar the Daily Stock Report

Even though the markets were up today over 1%, the odds are still in favor of a pullback that started last Friday. Markets don’t go straight down to our target price without what is known as backing and filling and today is exactly that, a partial “filling” of the sizeable drop we had yesterday. If the market triggers lower tomorrow and accelerates on Thursday we could get some aggressive selling that may scare the public, again.

If you are position trading, like we have done with the short positions of the banks and life insurance companies, we are partially making assumptions that the down trend or bear market trend is still intact and the recent tradable rally we saw start 2-3 weeks ago was only a countertrend rally. We look for evidence that conflicts with that assumption and try to be flexible enough to change opinions according to what the evidence presents us. As any good trader or investor, I try not to “hope or wish” for anything specific except for making good decisions and following procedures. My hope and desire is that I can teach you this.

There isn’t any specific news to drive the markets one way or another except to say the Japanese market is up on prospects that GM and Chrysler will be forced into bankruptcy.

We are in a holding pattern with the current short positions. There aren’t any moves we should be making except for intraday trades (in and out the same day) so don’t get impatient at this point and do something dumb. Let’s keep adding to the “wish list” below of stocks that we want to be long in that may last for more weeks than what we just saw.

The housing stocks accelerated its decline today with LEN, Lennar leading the way down and yet the SRS, Proshares Ultrashort Real Estate ETF dropped today by 13.3%, go figure.

Oil had no change today and will likely follow the market as it has been for the last 6 months.

Intermediate Trade Positions: No new positions; holding short positions in banks and insurance companies. Just keep looking for high quality stocks that have been acting well and this will be our “go to list” when stocks go on sale. It is kind of like looking for better and better sales on merchandise we have been wanting to buy in a store. We can see them putting the merchandise on the tables and writing signs about deeper discounts but haven’t posted them yet. So keep building your own wish list and have them standing by ready to buy if or when the markets get blood ugly and ready to buy. Keep studying these stocks, charts and fundamentals.

UTX, United Technologies (Swing)
MA, Mastercard
IBM, International Business Machines
TNH, Terra Nitrogen
BIDU, Baidu
AAPL, Apple Computer (SWING)
AMZN, Amazon.com
BMC, BMC Software
RAX, Rackspace Hosting
STEC, Stec (SWING)
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
BR, Broadridge
GS, Goldman Sachs
MS, Morgan Stanley
MRVL, Marvell Technology
WFR, Memc
S, Sprint
GOLD, Rangold Resources
RS, Reliance Steel & Alum.
CMG, Chipotle Mexican Grill (MacDonalds subsidiary,SWING)
BKE, Buckle Apparel
ARO, Aeropostale
DNR, Denbury Resources (Oil & Gas)
VQ, Venoco (low priced oil & gas)
TLM, Talisman Energy (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. 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: 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.