Brigitte
22.12.2000, 11:48
* * * *
12/21/00 Investment House Daily
* * * *
Investment House Daily Subscribers:
TONIGHT:
- The markets started to rally, and we expect some more tomorrow the last
day before Santa arrives.
- Timely trading thoughts.
- More warnings from stalwarts of the economy.
- As more information comes in, the economy shows more weakness.
- Team Trades
An anemic rally attempt leaves the market still looking decent for a
final, one-day ho-ho rally.
The Nasdaq did pretty much what we wanted, testing 2285 and then starting
a solid, 135-point move up just over an hour into trading a 6% move. That
was great. Then the November FOMC meeting minutes came out where the Fed
stated it did not want to shift to a neutral bias for fear it would
further soften the markets. Whether that almost incomprehensible logic
was the cause or not, the Nasdaq then started a slow topping pattern and
then rolled over 12:45 CT when the 5 minute moving average crossed over
the 15 minute moving average. A late rally move turned the Nasdaq
positive once again at the close, but it was a bittersweet finish. The
Dow and the S&P 500 both turned in much better days, but they also sold in
the afternoon as sellers once again entered on a rally in order to dump
shares.
Still, we were able to trade some plays as we described on Wednesday night
on the big move up. Utilizing trailing stop losses, we were able to lock
in some decent gains for the session. Not home runs, but nice singles.
After the dust settled, there are still some good-looking bounce patterns
out there, i.e., doji's at the bottom of a long spate of selling, that
could give us another run up as we saw today. We note SEBL, NEWP and VRSN
all closed on tight doji's today, an indication they could spring up
tomorrow in a pre-holiday rise. Indeed, the Nasdaq itself shows us a doji
on its candlestick chart, indicating it too is ready for a rise. Nasdaq
futures are 60 points above fair value tonight.
Probably not a meteoric rise, but one, like today, can make us money as
the big movers run up. We have to keep putting in stop losses as they
move up, just as we did on the JNPR and MRCY trades we discussed last
week. That way we are better assured of locking in that gain we do have
in the event we get another one of those intraday reversals that peel off
the nice gains made intraday. We are thus looking at the same type of
plays we were looking at today: techs ready to bounce and run up, solid
sectors breaking out, and downside on those stocks that run into
resistance in their down trendlines and roll back over.
Investing in this market.
This brings us to some important points to consider in this type of market
as we head for the new year. First, as we have stated repeatedly over the
last couple of months, this market is not showing us this is a 'buy and
hold' market right now. Stocks move up and then fall back. There are
uptrends to play as we are seeing in the financials, drugs, healthcare,
food, and beverages. There are downtrends we can play in the techs when
they hit their down trendlines. None of these are going to last
long-term. So, unless you are dollar-cost averaging at this point for the
very long term, you are not thinking long term. Indeed, if you are dollar
cost averaging, you are not expecting a rise anytime soon; no short-term
gains.
What money do you use?
So, what money should you be using? Not your entire trading capital.
Times are just too uncertain to risk the whole enchilada on any particular
trade. We are using a fraction of our investment capital to make the
trades we are making. Our reason is simple: we are not able to let trades
run for days or weeks at a time due to the volatile market, so the risk is
higher. We do not want to put all of our investment capital at risk on
trades that are not going to make us rich. We will make trades that make
us 20%, 30%, and 50%, but we are not putting up all of our trading money
to do it. We try to make money all the time in the market, but the amount
we put at risk depends upon the conditions. We don't want to take
ourselves out of the game by losing all of our trading money and have to
rebuild a trading account from scratch.
Stick to sell rules.
Many people have taken it on the chin this year. We have some missed sell
orders that we had to take greater losses on than we would normally have
done; when we did not get the trade we employed the most dangerous of all
market tools: hope. Hope does not buy much, and we have paid the price on
those trades. You have to keep strict sell rules, especially in this
market. Don't hope a trade will turn around. Better to take a small loss
than see a one-day drop turn into a 7-day, 500+ point drop as we just saw
on the Nasdaq. Watch your positions and use pre-set or mental sell
points.
Trust the market signals, not your emotions.
Because this has been a tough year, does that mean we walk away from the
market? Of course not. We have to keep our skills sharp despite the
carnage. Why? Because emotion is eating at you. That is how the market
works. It sends you to incredible emotional highs, and then it just rips
it all from you. We know some of you have lost large amounts of money
this year; you are not alone. Just think, CSCO, one of the 'safest'
stocks to own, the darling of mutual funds, has lost over $500 billion in
market cap this year. Think all funds sold out of CSCO? Hardly. They
are nursing losses as well. So, you feel as if the market has walked over
you, turned around and then and gave you a couple of kicks to the stomach
as you were lying there, right? REMEMBER THIS: when you feel ready to
chuck it all and give up on the market forever, that is when things are
usually ready to turn. That is the negative sentiment that clears out the
last holders, the wannabe sellers. What YOU HAVE TO DO is keep looking at
the market. DO NOT trust your emotions. Trust the market indicators.
Keep watching for a reversal followed by a higher-volume gain of 1.5% or
better 4-10 days later. Watch for strong stocks to start breaking out of
sound patterns, something we are still a few weeks away from right now.
When that happens, you will most likely say 'yeah, right,' and turn away;
at least that is what your emotions will tell you to do. That, however,
is the precise time you should shun emotion and trust what the market is
showing.
Help is on the way.
We know there is going to be a Fed rate cut sometime in January. The Fed
Funds Futures contract now as a 44% to 50% probability priced in that
there will be a rate cut BEFORE the January 30 FOMC meeting. Very
reliable; very accurate. A rate cut officially kicks off stock market
recoveries as the market looks ahead, and rate cuts mean more money and
investment in the economy, and that means growing earnings. The pundits
estimate a 25% to 50% rise in the Nasdaq in 2001. With aggressive rate
cuts (75 to 100 basis points in the first half), that is not out of the
realm of reasonable reality. 25% is not bad. 50% is great. Who will be
in to capture the lion's share of that move? Those who keep in tune with
the market and are watching the signals. When the market says 'go,' you
go and ask questions later. If you hesitate, ponder, procrastinate,
instead of 25%, you may get 10%.
Keep your focus.
We have said it before. Michael Jordan took a year off and then came back
to basketball for the playoffs. He was not Michael Jordan; the timing was
not there. It is a tired clich , but it is true. You have to run the
drills just as if you were playing so when the time comes, you can turn up
the tap on the number of dollars you are investing because the risk is
diminished when the market starts to rally for those who are watching and
ready to take action. Those
12/21/00 Investment House Daily
* * * *
Investment House Daily Subscribers:
TONIGHT:
- The markets started to rally, and we expect some more tomorrow the last
day before Santa arrives.
- Timely trading thoughts.
- More warnings from stalwarts of the economy.
- As more information comes in, the economy shows more weakness.
- Team Trades
An anemic rally attempt leaves the market still looking decent for a
final, one-day ho-ho rally.
The Nasdaq did pretty much what we wanted, testing 2285 and then starting
a solid, 135-point move up just over an hour into trading a 6% move. That
was great. Then the November FOMC meeting minutes came out where the Fed
stated it did not want to shift to a neutral bias for fear it would
further soften the markets. Whether that almost incomprehensible logic
was the cause or not, the Nasdaq then started a slow topping pattern and
then rolled over 12:45 CT when the 5 minute moving average crossed over
the 15 minute moving average. A late rally move turned the Nasdaq
positive once again at the close, but it was a bittersweet finish. The
Dow and the S&P 500 both turned in much better days, but they also sold in
the afternoon as sellers once again entered on a rally in order to dump
shares.
Still, we were able to trade some plays as we described on Wednesday night
on the big move up. Utilizing trailing stop losses, we were able to lock
in some decent gains for the session. Not home runs, but nice singles.
After the dust settled, there are still some good-looking bounce patterns
out there, i.e., doji's at the bottom of a long spate of selling, that
could give us another run up as we saw today. We note SEBL, NEWP and VRSN
all closed on tight doji's today, an indication they could spring up
tomorrow in a pre-holiday rise. Indeed, the Nasdaq itself shows us a doji
on its candlestick chart, indicating it too is ready for a rise. Nasdaq
futures are 60 points above fair value tonight.
Probably not a meteoric rise, but one, like today, can make us money as
the big movers run up. We have to keep putting in stop losses as they
move up, just as we did on the JNPR and MRCY trades we discussed last
week. That way we are better assured of locking in that gain we do have
in the event we get another one of those intraday reversals that peel off
the nice gains made intraday. We are thus looking at the same type of
plays we were looking at today: techs ready to bounce and run up, solid
sectors breaking out, and downside on those stocks that run into
resistance in their down trendlines and roll back over.
Investing in this market.
This brings us to some important points to consider in this type of market
as we head for the new year. First, as we have stated repeatedly over the
last couple of months, this market is not showing us this is a 'buy and
hold' market right now. Stocks move up and then fall back. There are
uptrends to play as we are seeing in the financials, drugs, healthcare,
food, and beverages. There are downtrends we can play in the techs when
they hit their down trendlines. None of these are going to last
long-term. So, unless you are dollar-cost averaging at this point for the
very long term, you are not thinking long term. Indeed, if you are dollar
cost averaging, you are not expecting a rise anytime soon; no short-term
gains.
What money do you use?
So, what money should you be using? Not your entire trading capital.
Times are just too uncertain to risk the whole enchilada on any particular
trade. We are using a fraction of our investment capital to make the
trades we are making. Our reason is simple: we are not able to let trades
run for days or weeks at a time due to the volatile market, so the risk is
higher. We do not want to put all of our investment capital at risk on
trades that are not going to make us rich. We will make trades that make
us 20%, 30%, and 50%, but we are not putting up all of our trading money
to do it. We try to make money all the time in the market, but the amount
we put at risk depends upon the conditions. We don't want to take
ourselves out of the game by losing all of our trading money and have to
rebuild a trading account from scratch.
Stick to sell rules.
Many people have taken it on the chin this year. We have some missed sell
orders that we had to take greater losses on than we would normally have
done; when we did not get the trade we employed the most dangerous of all
market tools: hope. Hope does not buy much, and we have paid the price on
those trades. You have to keep strict sell rules, especially in this
market. Don't hope a trade will turn around. Better to take a small loss
than see a one-day drop turn into a 7-day, 500+ point drop as we just saw
on the Nasdaq. Watch your positions and use pre-set or mental sell
points.
Trust the market signals, not your emotions.
Because this has been a tough year, does that mean we walk away from the
market? Of course not. We have to keep our skills sharp despite the
carnage. Why? Because emotion is eating at you. That is how the market
works. It sends you to incredible emotional highs, and then it just rips
it all from you. We know some of you have lost large amounts of money
this year; you are not alone. Just think, CSCO, one of the 'safest'
stocks to own, the darling of mutual funds, has lost over $500 billion in
market cap this year. Think all funds sold out of CSCO? Hardly. They
are nursing losses as well. So, you feel as if the market has walked over
you, turned around and then and gave you a couple of kicks to the stomach
as you were lying there, right? REMEMBER THIS: when you feel ready to
chuck it all and give up on the market forever, that is when things are
usually ready to turn. That is the negative sentiment that clears out the
last holders, the wannabe sellers. What YOU HAVE TO DO is keep looking at
the market. DO NOT trust your emotions. Trust the market indicators.
Keep watching for a reversal followed by a higher-volume gain of 1.5% or
better 4-10 days later. Watch for strong stocks to start breaking out of
sound patterns, something we are still a few weeks away from right now.
When that happens, you will most likely say 'yeah, right,' and turn away;
at least that is what your emotions will tell you to do. That, however,
is the precise time you should shun emotion and trust what the market is
showing.
Help is on the way.
We know there is going to be a Fed rate cut sometime in January. The Fed
Funds Futures contract now as a 44% to 50% probability priced in that
there will be a rate cut BEFORE the January 30 FOMC meeting. Very
reliable; very accurate. A rate cut officially kicks off stock market
recoveries as the market looks ahead, and rate cuts mean more money and
investment in the economy, and that means growing earnings. The pundits
estimate a 25% to 50% rise in the Nasdaq in 2001. With aggressive rate
cuts (75 to 100 basis points in the first half), that is not out of the
realm of reasonable reality. 25% is not bad. 50% is great. Who will be
in to capture the lion's share of that move? Those who keep in tune with
the market and are watching the signals. When the market says 'go,' you
go and ask questions later. If you hesitate, ponder, procrastinate,
instead of 25%, you may get 10%.
Keep your focus.
We have said it before. Michael Jordan took a year off and then came back
to basketball for the playoffs. He was not Michael Jordan; the timing was
not there. It is a tired clich , but it is true. You have to run the
drills just as if you were playing so when the time comes, you can turn up
the tap on the number of dollars you are investing because the risk is
diminished when the market starts to rally for those who are watching and
ready to take action. Those