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Bank Stocks February 24, 2009 Tuesday Evening The daily stock Report

Bank stocks were already wanting to go up today and when Federal Reserve Chairman calmed the markets by saying it is possible the recession could bottom this year if everything goes right, the market caught fire.  The Dow30 was up 3.3%, Nasdaq Composite 3.9% and the S&P 500 up over 4%.

Our intensity and focus on bank stocks is paying off to give us big profit percentages in swing trading stocks that occur every 2 or 3 months.  USB is up over 27% off the bottom, WFC 49%, BAC 87%, and JPM 18%.  Keep focused even though you are counting your profits, because you should be selling the next day or two.  These types of rebounds usually don't last long, especially in such a battered sector.  This could be a "V" bottom but it isn't likely that it will be a significant one like we have seen on July 15th, 2008, November 21st and January 20, 2009 with the banking sector.

You could play this rebound by selling off as it goes up in a gradual manner using the intraday charts, preferably the 5 minute, 1 day chart and switch to the 15 minute 5 day chart for a different look.  After you sell these stocks, don't beat yourself up if these continue to move up.  The biggest mistake is to chase a stock that is moving up after you sold it when the odds are against you.  That is when greed has control of you.

If there is newer and positive news regarding banks, it could ignite this group to move up further but you will have to assess how meaningful that news is to our banking stocks.  That news would have to appear tomorrow before our plans to sell the bank stocks tomorrow or Thursday.  We play these strategies with the odds on our side kind of like how Tiger Woods plays percentage golf, with the odds in his favor.

Becoming a great investor or trader means you control your two biggest enemies, fear and greed as well as playing the odds in your favor.

The T2108 daily chart on the Worden Brothers daily chart continued moved up today to 13.98% from 9.49%.   

Oil prices moved up 4.9& today along with the overall market.  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:  BIDU, Baidu, a Chinese internet information provider.  This is worth a small position, preferably after a small dip.

Swing Trades:   New Ideas:  X, US Steel, is worth a small position and look for $28-29 on this rebound here.  Current price is $22.15 at today's close and tomorrow morning would be likely the entry point for a long position.

Day Traders/Intraday stock ideas:    IMPORTANT:  Look for a shallow or medium drop in stock prices tomorrow with a tradable long scalp.  Continue to watch ICE, BLK, CME, POT, MON, MOS, AMZN, AAPL, FSLR, BIDU, USB, WFC, JPM and any high volume, high volatility stocks.   

NOTES:  REPEAT:  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 re 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

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