Thursday, October 9, 2003
Issue Contents:
| 09:11 | Good Morning... Glowing good news across this board this morning...hmm. |
| 09:23 | Swing Trade of the Day This is our stock swing trade of the day. |
| 10:31 | Points to Ponder As we look through the stocks in List 1, we find some interesting daily charts. |
| 16:16 | 2003-10-09 Transcript for Real Time Trading Group Real time forum discussion transcript: 2003-10-09 Transcript for Real Time Trading Group |
| 22:12 | Good Morning... Early euphoria gave way to a fade at by the close. |
| 22:23 | And the Nobel Prize Goes to... Winners of the Nobel Memorial Prize in Economics awarded announced. |
| 22:33 | Headlines and Reaction And speaking of predictions, I mean, forecasts... |
| 22:41 | Quality vs. Quantity How the teacher sees it. |
| 22:57 | [QQQ, Daily] NASDAQ 100 Index Shares The buy signal set up on September 30 has hit the upside target. |
Have you ever noticed that by the time there is glowing good news across the board, the market has always been rallying for a really long time?
On this morning's U.S. Economic Calendar, we saw a jobless claims drop 23,000 last week to an eight-month low of 382,000. Wal-Mart and Sears beat the street for September same-store sales. They are dancing in the streets!
Pre-Market Activity
Add this to Yahoo! beating the street, this must finally be the "all clear" signal for investors to jump in and buy, buy, buy. For traders, it's fine to buy high and sell higher because the object of the game is to pass the trade on to the next greater fool, but for investors who to intend to buy and hold, coming late to the party always means that there is the danger of buying at a top. Of course, the tops never look like tops; they always look like the sure thing.
As discussed yesterday afternoon, holding a trade through a key day filled with earnings releases or economic numbers always poses a risk, and if a swing trade is not going your way by the end of the day that it was initiated, the last half-hour is always the time to pitch it. That said, the fact is that we cannot make money without risk, and there is only so much we can do to reduce it. Since a swing trade is a potential multiple day hold, it's unrealistic to try to reduce the risk from dollars to pennies.
In the case of the potential spike top in RIMM, things have not changed. The initial stop loss is still there, and even if we are stopped out, the setup is still the same. I think you know that the market is now in some sort of manic phase.
Not only is the ADX at an extreme on the daily chart for this symbol and timeframe, it's also at an extreme on the weekly chart for this symbol and timeframe - and it's the same for a lot of the Net stocks that people have snapped up.
SEBL DAILY: Is this an exhaustion gap? ADX is not that high on the daily chart, but it sure makes you wonder.
AMZN DAILY: ADX on the weekly chart is over 50!
2003-10-09 Transcript for Real Time Trading Group
Real time forum discussion transcript: 2003-10-09 Transcript for Real Time Trading Group
Click on the title above to expand this document.
We have two pieces of economic data on the U.S. Economic Calendar coming out this morning, and after that, we'll be getting ready for a early bond bond close ahead of the U.S. Columbus Day/Canadian Thanksgiving long weekend.
We've seen a ton of earnings come out this week, and it was very interesting to see the euphoria in pre-market activity Thursday fade by the close. Some would consider the price action to be a "key reversal" day.
And the Nobel Prize Goes to...
N.Y. Times: Two Professors, Collaborators in Econometrics, Win the Nobel Prize
Interesting to read in the article that the price in economics is the only Nobel prize not established by Alfred Nobel's will. From reading the article, maybe he knew a thing or two about making predictions -- I mean, forecasts -- when it comes to the economy or the stock market!
Before the two published their work, economists often had to assume that a variable was no more likely to move in one direction than the other, even when the evidence — such as the rise in stocks over the last 200 years — showed otherwise. Statistical models simply offered no alternative.
In the late 1970's, however, Professor Granger developed ways to analyze the relationship between two statistics that had both a long-term trend and an element of randomness. The month-to-month fluctuation in consumer spending, even as driven more broadly by changes in household wealth, is one example.
Professor Engle's primary work improved the understanding of volatility, particularly in the stock market, and enabled economists to make more accurate forecasts. Previously, researchers were often forced to assume that volatility did not change over time.
Allan M. Malz, head of research at RiskMetrics, a financial and software company in New York, said Professor Engle's methods had spawned hundreds of new tools for analyzing stocks.
Goodness! All we really needed to know is the fact that people keep doing the same stuff over and over...
We can see that one of the WSJ headlines tonight is:
Economists lifted their estimates of U.S. third-quarter growth to 5%, according to an Online Journal survey. But they don't expect that pace to be sustained.
REACTION:
We know how the game is played. As the numbers come in, the numbers are "revised".
U.S. stocks rallied Thursday, exactly a year after major indexes hit their bear-market lows, as Wall Street cheered a wealth of encouraging news about the labor market, retail sales and earnings. The Dow industrials ended up 49.11 points at 9680.01, while the Nasdaq composite rose 18.12 to 1911.90.
REACTION:
This is why it's hard for investors to buy low and sell high. At the high, there's nothing except glowing good news, and you've got to be crazy to let go. At the low, it's all bad new, and you're insane to buy. A never-ending vicious circle.
A trader's mind always believes that it's more important to get it right than to make a lot of commotion. Economy of words; that is our style. But, we are always reminded by subscribers that quantity is part of quality, so here goes...
[QQQ, Daily] NASDAQ 100 Index Shares
On September 30, we noted the $VIX reversal that took place on the pullback to the 50-day MA, a buy signal on the daily chart. It's hard to believe, but it's been only seven trading days since.
QQQ DAILY: In Thursday's trading, price hit the September 19 swing high, the upside target for the buy setup. It was a very strange day, opening gap up on euphoria over Yahoo! earnings and a good jobs report. By the end of the day, gains had been erased. With a high volume, long legged doji day put in and a close back under the September 19 swing high, we will be watching to see if sellers come out en masse on this test of top.