Daily Stock Picks Report Archive

December 29, 2008, Sunday Evening                                                                                                                            www.TradeStocksAmerica.com

I watched the stock market from a distance this last week on my "vacation" and it clearly acted the same way it usually does the week of Christmas and that is, SLOW with little volatility.  This coming week is also likely to be the same with a bias toward the upside.  We have no trading Thursday, January 1st and you can expect that volume will be very light with the hedge fund traders, mutual fund and money managers still on vacation through this week.  Often you can see some crazy things happen with low float and lower priced stocks during the holidays because not all the players are present.  Primarily the retail day traders are active and they tend to look for a runner and jump on it on the long side.  So, basically this week won’t be normal and will be difficult to have any solid basis to rely on.

We should see the next 3 days (or the last of 2008) have some churning where managers tend to sell off losers to take that year end losses against any winners.  So this tends to cause some "artificial" selling by these portfolio re-adjustments.   Yet the market breadth (advances vs. decliners ratio) will likely be positive in the underlying selling that might occur.

What is going to be of most interest is to see how the indices (Dow 30, Nasdaq Composite and the S&P 500) act with the overhanging negative economic news.  As you probably know by now, markets don’t coincide in parallel direction as the economy.  Markets tend to move ahead of the actual bottom in the economy, often by 6-9 months ahead of the economic turn.  My personal opinion is it is a fool’s game to try to calculate forecast the bottom in the economy and extrapolate backwards to time a rising stock market.  It goes back to trading what you see in the charts with some weighting given to common sense of what is happening with the economy as well as the stimulus packages the government has been taking these past couple of months.  Eventually those government actions are going to take hold and have a positive effect.

We are likely to see some further drops in housing prices in the coming few months but probably at a lower rate of decline.  The US automakers will likely not have enough money and more bad news will likely come from somewhere.  But most everybody knows that by now.  And we trade what we see, not what we hope for.  We should be monitoring a combination of factors like how stocks are acting, which sectors are moving in which direction, the general direction of the indices and the overall sentiment of the investors.  My best guess is the market is more likely to meander in a lazy fashion in a gradual upward trend than it is to see lower lows than the November 21st lows so we should monitor and compare how the market acts with the "forecast."

Intermediate Trade Positions:   Here are a few of stocks that are moving up nicely and look good from a technical view on the daily chart.

HWAY, Healthways, health services.

OMX, Office Max, office supplies.

VRX, Valeant Pharmaceuticals.

K, Kellog, food and beverage manufacturer.

LLL, Level 3.

Still watching USO, United States Oil Fund ETF for a long entry point; USO will probably be one of the most profitable intermediate trades in the next year.

Swing Trades:    IBM, International Business Machines, looking for 7-10 day long position.

Major oil companies:  XOM, COP, CVX, BP are good entry points here on the long side with a 1-3 week time horizon.

HIGHLY SPECULATIVE:  CPE, Callon Petroleum swing short is acting very well.  The target price of $2.00-$2.10 to cover this short position was reached last week.   This has slowed going down last week but in very light volume.  Have close stop loss on this in the event it resurges upward so don’t let your profits evaporate on a big move up on this short position.

Day Traders/Intraday stock ideas:   Intraday trades should be put on hold until first week of January when all professional managers and traders move back into the market next week.

Concluding thoughts:  Should be a slow weak in volume and volatility.  Reliability won’t be high in reading the market this week.  Market will be skewed as few people remain in stock market except small individual investors, traders, and speculators.

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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