Daily Stock Picks Report Archive

December 16, 2008, Tuesday Evening                                                                                                                           www.TradeStocksAmerica.com

What another day of history for the stock market today after the Federal Reserve lowered rates .75% to .25% and stated their target rate could go as low as 0%.  That is normally the Fed’s most important weapon but they also committed to buying $600 billion of CDO’s (collateralized debt obligations).  The theory is that this should help reduce future foreclosures by lowering interest rates and add liquidity in this investment that primarily banks hold.  Also cited as a benefit is this lowers interest rates for credit cards, auto loans, variable rate mortgages and home equity loans.  The last time rates were this low was in 1932 during the Great Depression.

Within the last week I’ve mentioned that we are getting more and more bullish signs and if the buying starts accelerating, many mutual fund managers will rush in the market for fear that their peers will outperform them.  Typical for sheep (as they all get slaughtered together) but the buying could start accelerating.  We probably get some selling at the open considering that has been the pattern repeatedly but that pattern may start to change if a bull run gathers momentum (not as in momentum stock).

The financials stocks WFC, BAC, GS and JPM popped up today with this unexpected and unprecedented move.  JPM, JP Morgan Chase and WFC, Wells Fargo  is the most bullish of the three stocks but the next question is whether stocks pull back from here or move higher.  Previous interest rate reductions have been met with more selling in the following days but this one is the largest reduction with strong verbal commitments from the Fed that they will use other means to prop up the economy and reduce the fallout from the housing sector.

If we see some government action on the auto bailout this week, that would add more fuel to the bull run we are on at the moment.  This Fed action today and the strong words really is going to put in a floor in the market and will likely subside fears of big sell-offs in the future.  If you look at how well the stock market has acted recently after facing the kind of news it has had, from the $50 billion Madoff fraud, 19% drop in housing starts (biggest drop since1959), Consumer Price Index falling 1.9% today, the biggest drop since 1932 as well, auto bailout not voted in last week and reduced from $25 billion to $14 billion, massive corporate layoffs, and questions about the government regulators are all events strong enough to shell shock any stock market.  But the US stock market appears to be responding to CPR treatment and is still showing a heartbeat.  When we see economic numbers start improving caused by the government intervention, the market could continue to move up for months.

Intermediate Trade Positions:   FXI, Xinhua 25 etf, PTR and SNP responded well along with many other stocks.  The uptrend continues as it bounces off the bottom of the trendline channel drawn in last night’s video report.  This is still a hold and looking good.

WFC, BAC, and JPM responded positively immediately upon the Fed announcement and didn’t take the several days to respond.  JPM and WFC  are recovering from last week’s sell off in the financials.  It also helped that Jim Cramer was pounding the table after the Fed announcement to buy banks!

The steel sector, X, SCHN, and AKS moved up nicely and continues to support the uptrend in the moving averages and other technical indicators.  This is worth a small long position with about a 5% trailing loss initially and moving it up as the stocks move up.

The major oil companies, XOM, COP, and CVX have established an uptrend pattern that is worth a small long position.  Don’t expect huge percentage profits but should be profitable on the market value increase as well as the dividends.  If oil makes any substantial moves, oil stocks will move very nicely along with it-up that is.

Swing Trades:    RMBS, Rambus, a memory chip developer is still moving up, continue to watch and wait (the hardest behavior to do in stock investing/trading.

Patiently waiting for a short entry on RMBS.  Note that this is one beautiful looking "V" pattern that I’ve talked about so often these past 6 months (or for 16 years to myself!).

It is still not convincing that the housing stocks such as DHI, CTX, TOL, PHM, LEN, will have a sustained tradable rally.  Don’t treat this as a commodity that could rebound.  Avoid this sector or patiently wait for short entry.

The life insurance sector (HIG, PRU, MET, LNC, PFG) rebounded sharply today as well but this could easily resume its corrective pattern as well but may take a while to do that.  The tell-tale sign that this could be a sustainable and tradable rally is if or when the stock price moves above the recent highs.

The coal sector stocks (FCL, ACI, JRCC, MEE, CNX) really acted strong today and deserves money to go long.  Make sure you don’t get too heavy in the sector.  More and more indications are appearing that this commodity sell-off is ending and when the government workings between the Treasury, Federal Reserve, Congress and the White house starts taking affect into the economy, this group, including all commodity related sectors could move up very substantially.  This is definitely worth some money to go long.   

FCX, Freeport McMoran responded favorably as well today and should have been stopped out of the short position.

INTC, Intel is moving up nicely although we are late to the party on this one.  Consider this long as a swing or intermediate after a slight pullback.

HIGHLY SPECULATIVE:  CPE, Callon Petroleum is starting to correct and this could get into the low $2 range and provide a substantial profit potential from the $3 price yesterday.

Day Traders/Intraday stock ideas:   There was no drop in AMZN, RIMM and FSLR today; they just popped and never dropped.  Tomorrow could be a repeat but with a lower percentage move up.  AAPL was down after the market closed today on the news that Steve Jobs won’t be at the MacWorld this year.  Possibly the speculation of his health issue could be reappearing to spook the stock. 

Concluding thoughts:    More and more sectors are turning up and developing an uptrend.  This could be the move we are looking for that will be potentially large profits with intermediate term moves (weeks to months).  We are not too late for intermediate trades and it is time to be more aggressive but not overly weighted in any specific stock position.  This takes a lot more patience to detect and stay with an intermediate long position and is a very different discipline than what we have been working with in the last several months with mostly intraday trades, then swing trades that last a couple of days and now the hold periods are lasting longer.  It is a lower maintenance type of trading technique but a trailing stop loss is absolutely necessary for intermediate positions. 

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.

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 represent 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 tomorrow. 

Mitch King

www.TradeStocksAmerica.com

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