Daily Stock Picks Report Archive

December 17, 2008, Wednesday Evening                                                                                                                                 www.TradeStocksAmerica.com

NOTE that there will be no reports next week until December 28th.  Next Thursday no trading on Christmas and only 3.5 hours on Friday.

Even though the Dow 30 was down about 100 points today, advancers beat decliners by 531 on the NYSE which is a bullish sign.  That says to me that small caps are outperforming the large caps.  And that is a good sign that small caps are in charge because that is usually a period when the market does well.  Either way, today’s action doesn’t mean the bull run is broken yet.  This period we appear to be going into is usually the most profitable in the stock market.  We have clearly been adjusting in a radical way to the business and economic cycle that is showing a negative outlook but the stock market is always moving up before the economy starts improving.

It is going to be several months whether we actually know if the bear market ends and a bull run is starting and we don’t want to be out the market before we know for sure.  There is plenty of money to made during this period don’t feel like you can’t make money because you didn’t get the last bottom in stocks 2 weeks ago.  We are likely to get  a couple of false starts in this uptrend that it looks like we might be starting now so be patient.  I realize it is a difficult transition to be patient after making large profits quickly intraday trading or swing trading for 2 or 3 days but our mindset should shifting toward the intermediate term long positions that may last for months as opposed to hours.  The intraday techniques will still be good but we are now back down to the 1-3% per trade than what we saw a few short weeks ago of 5-10% profits in hours or in some cases, minutes.  "Buy on dips" strategy is going to start working more often now but we know markets will correct.

We just can’t ignore the massive amount of money the FED has put into the system.  Plus we have had historic rise in Treasury prices and that is not a sustainable pattern.  That money is likely to come out of the Treasuries and be put into equities (stocks) to some degree, helping propping up stock prices.  On a short term basis, stocks are probably overbought but longer term we are getting intermediate term strength.  Remember that T2108 chart on Worden Brothers Daily charts?  It shows the percentage of stocks over the 40 day moving average which is 57.7% right now.  In early October 9th it was just over 1%, so that was a low (as predicted by me) but November 21, 2008 was the Dow 30 low.  Don’t forget about the auto bailout which is extremely likely to be enacted in some form.  This should add a little more fuel to the bull run before that gets voted in.

Only 3 sectors are in a downtrend right now out of about 40.  Those are Junk bonds, municipal bonds and commodities.

Intermediate Trade Positions:   FXI, Xinhua 25 etf, PTR and SNP looks like they are resting and couple of indicators are showing that on a short term horizon, they could pull back slightly.   SNP moving average line is leveling out as of today, which is normally a sell signal for me.  I’m treating this as a "rest" and looking for a resumption of upward trend the next couple of days.

The steel sector, X, SCHN, and AKS (and 39 other steel stocks) continue to move up nicely, following the uptrend in the moving averages and other technical indicators.  It is going to be harder to trade in and out of these intermediate term long positions.  It is best to set trailing stop losses on them and move them tighter if the price charts turn parabolic upward (steeper and steeper curve up).

Steady as she goes with the major oil companies, XOM, COP, and CVX even though oil went under $40 today, going back to 2004 prices in oil.  These stocks clearly have completed establishing the bottom from October 10, 2008 and is still a hold 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:    REPEAT:  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!).  RMBS could continue to move up but without me because the risk is too high of a sharp correction.  The odds are against you to buy it now.

The coal sector stocks (FCL, ACI, JRCC, MEE, CNX) are still acting quite well and this long position is still a hold until it breaks down and hits your trailing stop loss.  This sector looks like it could continue for some time but maintain trailing stop losses of 5%.  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.   

INTC, Intel corrected today and look for the upward trend to continue after a couple of slightly negative days .  Consider this long as a swing or intermediate after a slight pullback.

HIGHLY SPECULATIVE:  CPE, Callon Petroleum is still correcting and should continue.  Target price of $2.00-$2.10 to cover any short.

Day Traders/Intraday stock ideas:   There was a shallow drop and BIG pop in FSLR today with a $19 move up or 12% on the pop.  Same with AMZN but only a 3% pop.   RIMM had a good intraday trade on the second bottom, the first one was only a 1.2% and the second was over 3%.  Try changing your intraday charts to 5 minutes to smoothen out the herky jerky motions the 1 and 3 minute charts still have.   Tomorrow we should see a similar pattern but a bigger drop with a smaller pop.   

Concluding thoughts:    REPEAT:  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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