Daily Stock Picks Report Archive

December 1, 2008, Monday Evening                             
www.TradeStocksAmerica.com

"They are back" said the little girl in the movie, Aliens.  The trap door opened and the stock market dumped today.  It looked like it was going to be a typical 300 point drop but when Meredith Whitney from Oppenheimer spoke today live on CNBC (around 1155am Pacific time) about the coming write-downs in the banks’ credit cards losses, the financial stocks took about 45 seconds to start dropping another 10%.  Her specific comment about WFC, Wells Fargo, made that stock drop more than others in that sector.  If I had my way I wanted more of a gradual controlled drop that didn’t scare the world so much because it is harder to forecast market direction.  And until this fear subsides for a month or two, we won’t make any substantial gains on the long side in the intermediate trades, which is the easiest technique for most people to understand and accommodate in their lifestyle.

Today was the 4th largest point drop in history of the Dow30.  It was an 80 to 1 down volume to up volume, meaning 80 shares were sold today to 1 being bought.  TWELVE stocks declined to ONE going up. 

But we are kicking terrorists and taking names on the intraday trades.  I covered short positions in the last hour when the Dow 30 was approaching -500 points.  I went after the coal stocks on the short side early this morning followed by JPM, WFC, BAC, MON, FSLR, AAPL and long the SKF (Ultrashort Financials ETF).  Usually when you see such a big drop like that, there is a reactionary snap back the following morning.  If the market does head back up 200 points at the first hour tomorrow, it could give us an entry point for small short positions again on at least an intraday and probably a short position on a swing trade overnight.  Don’t play the market on the long side early tomorrow – it could turn sharply lower without any warning while you are outside raking leaves or sun tanning in the fog.  This is how you work a market on the short side as a short term trader.  In a market that gives big moves like today, you should be taking these big profits in a day that gave us anywhere from 14- 23% today alone in the financials and 10-12% as a minimum on other stocks just by throwing darts at your watch list.

It seems most likely that we see a little buying early after the regular market opens followed by more aggressive selling that may take us below 800 on the S&P 500.  If the market sells off and the S&P goes to maybe 750-775, we should start looking for a rebound.  I am not convinced we need to go all the way down to the 740 level on the S&P 500 that we saw on November 21, 2008 to see a rebound.  Our big money has already been made on the long side for those 6 days and as well as short profits from today’s big drop.  So there will be few high probability ideas after tomorrow for at least several days EXCEPT for intraday trades which there are always plenty.

Intermediate Trade Positions:  none unless you are suicidal.

Swing Trades:  none

Day Traders/Intraday stock ideas:   Look for a slight pop and a resumption of the drop, so that’s a small pop and big drop.  If you haven’t sold short before, I’d try a small amount of money than your normal position size and look for the 3 minute charts to give you signals.  Watch the video tonight for a short tutorial on short selling and a good entry point on the intraday chart to open that short position.

Concluding thoughts:    The market should have more selling tomorrow.  If there isn’t selling tomorrow at the open and the market goes up 100-200 points on the Dow 30, it is highly likely it is what people call a bull trap, meaning it suckers people in on the long side and they are met with more selling the following hours and possibly days.   Don’t be buying long yet-you are not trying to be a hero and jump on a live grenade.  We probably won’t be buying long for another big day down in the stock market or 2 or 3 smaller down days.  There is just no reason why the market should be shooting up yet and the next rebound will not be as strong as last week’s 5-6 day run up.  Look at your daily charts as we reviewed on the video tonight.  The market is rewarding the intraday traders, you can make a lot of money with this volatility on intraday trades.  Just look at your watch list and see the percentage down we have today 15, 18, 20, 23% down today in many stocks. 

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.

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.  Don’t force anything to work for you tomorrow, let the setups develop and then take advantage of that.  Be patient the next couple of days.  Stay in position sizes without letting any intraday trade be more than 15-20% 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 tomorrow. 

Mitch King

www.TradeStocksAmerica.com

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