Daily Stock Picks Report Archive

November 6, 2008  Thursday Evening                                                                                                                            www.TradeStocksAmerica.com

The stock market did just what we expected and wanted.  I was thinking that maybe a 200-300 point drop in the Dow 30 would be expected for a correction but the 443 point drop today was a gift for two reasons.  One, the short positions matured better than expected and two, this sets up nicely for the next  bounce back upward which could start tomorrow, especially if we get another 200-300 point drop.  This isn’t gloom and doom that I am calling, it is forecasting what stocks usually do in certain circumstances.  Ignore all the fear of media writers (I am not a media writer) with headlines that are acting like Chicken Little, again.  Here are some of yesterday’s headlines….."Fear of Recession Looms Again" or "Economic Data Spooks Markets" or today’s headlines read "Market Waits for Obama’s Next Move" or "Lackluster Retail Sales Confirm Recession" or here is a good one "Wait for Economic Data Causes Sell-off."

This is all noise and static interference-these headline stories mean nothing to us.  Of course we know we are in a recession and it probably is going to be a deep one.  But we can still make a lot of money in a deep recession or a raging bull market.  It might even last another 12-15 months, who knows?  So don’t react and be influenced by this media.  They are all chickens running around with their heads cut off and they come of the woodwork the further the stock market drop.  The drop in the stock markets the last two days was as obvious as a, well, a new President was elected.

You remember my analogy I’ve used months ago, that the market is like a 10 year old girl whose emotions sway from one end of the scale to the other end without a whole lot of reason, just a lot of irrational fear.  And that is not what will make you a lot of money in stocks!  Bottom line, we want the market to have swings like this; we want the market to repeat the same patterns as before and there is always a way to make money in stocks in any market on most any day.  Your job is to keep watching what is happening and look for opportunities to make money in the stock market.  Learn what the stock charts are telling you and follow them religiously.   Let the stock market give you high probability setups that really stack the odds in your favor. 

For example, the last series of high probability ideas were to short the solar stocks.  That is over now, there is no more money in the solar stocks on the short side with much predictability.  Sure they could go down tomorrow a little more but your risks start going up as you hold a short position that has dropped so sharply and quickly. It was only yesterday that I shorted at $8.43-8.50 per share and closed today at about $6.60 for a net profit of 27% on a 2 day swing trade.

The next series of trades were to short the insurance companies, HIG, PRU and MET.  Let’s look at the Worden Brothers Daily Charts.  These were excellent short sales on Tuesday and HIG hit $19.75 but I didn’t get short until $18.85 but still made 12% on an intraday trade.  I re-shorted HIG again today as well as PRU very early in the first 15 minutes.  The clues that I had that were obvious are 1) we had a 481 point drop yesterday after 6 up days so the sentiment was negative and fearful, 2) the Asian markets were down heavily last night which spread to Europe, 3) the Worden Daily chart shows HIG climbed from a bottom of $8.82 five days ago to $20 and logic tells me people usually want to take their profit.

The next set of stocks were the ag-chemical stocks (MOS, MON, AGU, POT), and it looks like there is still a little money left in this group if you held short overnight today.  The coal stocks (FCL, ACI), got hit really hard today and this short swing is over.  I’d close those in the open tomorrow if I had them still short. 

The two oil and gas stocks mentioned last night, GMXR and EOG started correcting and if you are short overnight, I’m just not convinced these will see the kind of correction we have seen in these other groups.  I would pretty much take any profit tomorrow.  Oil prices dropped 7% today to go to a new low of $60.77 per barrel, which is amazing.  The daily stock charts on the oil and gas seem to be pricing in that oil will make a run up because they have not corrected much.

Another point to remember is you can tell how investors (includes fund managers, money managers, hedgies and Wall Street) views a sector.  For example, right now they love to sell into those solar stocks and we make money on the volatility.  Investors also have been selling and coal stocks heavily.  Note that gas stocks are not correcting so much so you want to observe these patterns and use that information when you make a position.  You will also notice when a stock is what I call "perky" which means people want to buy that and bid it up.  So you can remember that going long a perky stock, usually something like AAPL, RIMM and FSLR recently, that your odds are better going long.  If a stock is particularly weak one day, it often continues that pattern for quite some time and your odds are better to play it on the short side.

The VIX, Volatility Index moved back up 16.7% today to high of 64.78 today.   I’d be looking for the VIX to drop starting tomorrow as stocks should have a substantial tradable rebound upward.

Intermediate Trade Positions:  If you still have stocks long and did not sell in this latest rally, be prepared to hold for a couple of months to move to higher highs.  It is a little too late to be selling now.

Swing Trades:  Any overnight swing trades that are initiated at or near the bottom in the intraday stock charts tomorrow should not be held over the weekend.  There is way too much risk to buy long stocks on a swing trade on a Friday to hold it over the weekend.  At least, not in this environment-there are too many events that could happen.  As people get their senses back on Monday, we should be able to start holding stocks long again for days on the next bounce up but it won’t be as strong of a run up this time around. 

Day Traders/Intraday stock ideas:   The drop and pop pattern that we have been using on the intraday trades should work very well tomorrow morning and I am looking for a strong bounce UP sometime tomorrow morning.  Tomorrow is NOT a day to be shorting either on an intraday or swing trade.  Tomorrow is the day to be covering your short positions.  Look for the stocks that came down the most the last 2 ½ days and those will likely give us the most bounce tomorrow on an intraday long trade.  There should be an excellent drop and BIG pop tomorrow for intraday trades with      AMZN, CNX, BAC, WFC, AAPL, RIMM, FCL, ACI, GOOG, FSLR, MT, X, SNP, and WLT.

Remember to wait for a big drop and if this doesn’t happen, shy away from this idea and either look for another stock chart that presents a good setup.  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.  I recommend wide stop losses when using this technique otherwise you get stopped out frequently which is expensive, frustrating and distracts you from the bigger picture of making a successful trade.

Last Note:  We are still in a bear market with a strong downtrend.  This recent rally we just had in stocks was just a counter rally within a bear market.  They are powerful and can be very profitable, as you just have witnessed (and hopefully experienced).  We use whatever stock trading technique the market requires from day trades to swing trades (2- days), intermediate trades for months, short selling and long positions.  We can buy stocks, stock options, ETFs or occasionally bonds.

Have a great day and I’ll talk to you this weekend.

Mitch King

www.TradeStocksAmerica.com

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