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A realistic scenario, February 23, 2009 Monday Evening The Daily Stock Report

A realistic scenario, February 23, 2009  Monday Evening The Daily Stock Report Stocks opened up this morning in the regular market hours with banks having the highest gains.  And the first 15 minutes was the peak of the day for banks.

Then it was pretty much downhill for the rest of the day for most stocks.  The fact that banks were the only sector showing an up day except for JPM, JP Morgan Chase, which announced aftermarket a cut in their dividend to retain $5 billion cash.

JPM rebounded up 4.8% aftermarket on the news.  Go figure.  Normally stocks that cut their dividend get punished but for a bank that needs more cash to operate, it was welcome news.

WFC, Wells Fargo hit a high of $12.95 and then dropped 19% over the next four hours, bounced 12%, then gave it all up the following 2 hours to the close.  This kind of volatility is not unusual after a stock has dropped as much as these banks have.   

USB, US Bancorp was one of the strongest performers by moving up 7.1% today.  This daily chart ooks poised for a rebound upward, assuming the overall market starts turning up the next few days, which would boost the banking stocks sharply.

C, Citibank is the most vulnerable bank because of its high need for additional cash from the US Government.  BAC, Bank of America attempted to rebound today but also looks vulnerable.

A realistic scenario for the Dow30 is to continue down another day or two and could be followed by a sharp 2 to 5 day rebound that could give us some big profits but don't get heavy or leveraged in any one position.   

Use trailing stop losses by the percentages you are willing to lose for a stock.  The general rule is to have a stop loss that is about 1/3rd of the amount of profit that you are expected.  So if you think USB, for example is going to $14 and you buy at $11, then you would set your stop loss at $10 or a trailing stop of $1.

The trailing stop loss would trigger if your stock pulls back at least $1 off the high of any one trading day.  Use the intraday charts to choose your buy or sell point to maximize your profits and reduce your risk.

The T2108 daily chart on the Worden Brothers daily chart continued downward today to 9.49% of all stocks above the 40 day moving average.  Compare this with 89% of stocks were above the 40 day moving average on January 5, 2009 and that marked the high of stock prices for the year so far.

Oil prices moved up Friday another 2.2% in addition to the 12% on Thursday.  The move up in oil is affecting the commodity based stocks such as ag-chemical stocks like MON, MOS, AGU and POT in addition to the oil stocks themselves.

USO is still acting like a lazy dog by barely moving up today
after oil moved up 2.2.  Consider some of the independent ones like XTO, APA, APC, EOG, COG, HAL, RIG and many others during this bottoming process in oil prices.

Intermediate Trade Positions:   New ideas:  COG, Cabot Oil & Gas.  Worth small long position starting next day or two; use intraday charts to get best prices.

Swing Trades:   New Ideas:  SPECULATIVE:  ABMD, Abiomed.  Wait until this stops going down and starts turning up.  This is worth a small position long.  

Day Traders/Intraday stock ideas:    IMPORTANT:  Look for a substantial drop in stock prices tomorrow and if that occurs, we could see some very large intraday profits on a reversal.  Big drop and big pop is possible.  Continue to watch ICE, BLK, CME, POT, MON, MOS, AMZN, AAPL, FSLR, BIDU, USB, WFC, JPM and any high volume, high volatility stocks.   

NOTES:  The odds of a powerful short term rally is getting very high as stocks drop sharper and faster.  We are looking for this to start the next couple of days and probably only last a few days.

The best looking charts are with the banking stocks like USB, WFC, and JPM.  This market is not rewarding long term and intermediate  trades right now and the most profitable techniques are selected swing trades and intraday trading.   

Some of the tell-tale signs that we are getting close is extremely high volume in most stocks as well as the Dow30, panicky feeling among CNBC talking heads, and overall impression there is no hope in the stock market.  But that is when the highest opportunity lies.

Be observant, objective and become a student of the markets-it will pay off handsomely.

REPEAT:  Even if the market does what we are forecasting and that is a move upward lasting only a few days, don't get lulled into thinking the market is turning into a bull market.  It is very likely it is what we call a countertrend rally within a bear market.  Meaning, the market is still in a bear market and has a downward trend but powerful rallies can be seen within that downward trend.  This is what we are trying to profit from right now with the banking stocks and other sectors.  But prepare to sell
soon and stand aside or look for short sales if market turns over after just a few days up on especially the banking stocks.

I am still expecting some sort of substantial rally in the stock market sometime this year mostly driven by the massive stimulus that has already been poured into the system plus the planned stimulus package being proposed now.  Longer term though, in a couple years down the road, no doubt the taxpayer is going to have to pay for such the high debt amounts that the US government (and other countries) have taken on.   So tax rates probably will rise in coming years, interest rates will very likely have to rise as inflation surfaces and likely the bear market resumes sometime down the
road.  But we don't have to be stuck in a miserable cycle like most investors.  With the techniques and approach to the market, we will still thrive.

If you have been uncomfortable shorting stocks, which most people are, learn to get used to it, this will be a useful tool in the coming years.

When I list several stocks from the same sector, like the housing industry for example, don't short all of them unless you are well diversified and it represents a small percentage of your total stock account (in that same account).

REPEAT:  Keep an eye out for biotechs; they are building momentum and often do well in January.

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.  Intermediate trades are really important to have trailing stop losses set.

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.  Don't force anything to work for you, let the setups develop and then take advantage of that.  Be patient.  Stay in position sizes
without letting any intraday trade represent no 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.

About the Author

For more tips and information about Stock trading online , check out http://www.tradestocksamerica.com/daily-stock-pick-results.php .

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