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Welcome to the StockYard! The StockYard is a newsletter published weekly with short term, swing, and long term trading opportunities. The stocks are chosen based on several proprietary quantitative screens and indicators that have been developed and used for many years. These screens measure the probability of positive stock performance based on a combination of the fundamental and technical position of various stocks and sectors. This analysis is performed within a timing and valuation framework. The structure and trend of the broad market are also considered and will impact the frequency and types of stocks chosen.It's Beginning to Look a Lot Like August:Wow! What a difference a week makes. Last week the NASDAQ 100 Index was 3 days removed from a multi year high and the markets appeared to be in the midst of a minor correction. Several days of heavy selling this week led to the worst week for the NASDAQ in 5 years. The NDX dropped nearly 300 points from Tuesday's high and closed right on the lows Friday. As we pen these words the NASDAQ futures are down another 20 points in overnight trading and the S&P 500 Mini (ES) are down 7.5.Any time you have an extremely weak market that closes weakly on a Friday it will bring back memories of the 1987 crash and create nervousness in the market. We again have weakness in the overnight market and we will see what this week brings. Investors are concerned by the steady parade of major banks that have been taking turns announcing write downs related to sub prime mortgages.It's Beginning to Look a Lot Like August:Credit concerns and signs of a weakening economy and potential recession have dominated the news. News from Cisco Systems (CSCO) also spooked technology investors and got the selling started. There were a lot of recent gains in stocks like Google (GOOG), Research in Motion (RIMM), Apple (AAPL) and Baidu (BIDU) and managers elected to take some risk or profits off the table. Once a correction begins it is difficult to forecast the length or degree of the correction. It is imperative to become more cautious and take appropriate steps to position your portfolio to be more defensive. This does not mean raise 100% cash or get completely short. However, anyone using margin should get off margin immediately and consider selling weaker holding and trimming winners.We have been keeping it light in the portfolio lately and it really is more of a trading market than an investing market. The major indexes piercing and closing below their respective 20 day moving averages is troubling as these are well watched by many institutional investors. We also concur that until the market can gain ground and close above the key level of these moving averages that it is best to be light on stock positions. These levels come into play at 1480 on the SPX and 13200 on the Dow Jones Industrial Average (DJIA). The averages are currently in the areas that held on tests down in late August and early September. More weakness will bring into play the August 16 lows of 1370 on SPX and 12518 on the DJIA.Despite the signs of weakness our proprietary indicators are flashing short term buy signals. These simply indicate a short term bounce is likely to ensue and relieve the short term pressure. These signals are highly accurate, but the ones that tend to not lead to bounces most often occur when the averages are below the 200 day moving average so they must be managed accordingly. This is also options expiration week so we expect a great deal of volatility as the market seeks to find its footing. An option that expires Friday can be a creative way to participate in a potential bounce with limited downside risk. The downside risk may be your entire cost basis if the option is worthless on Friday.We are going to participate by purchasing the QLD which is a 200% exposure to the NDX. QLD closed Friday at 100.63 so purchase it near the open with a limit of 101. It will open under 100 if the futures remain down through Monday morning. Use an initial stop of 5 points and a first target of 3 pts and second target of 7.5 points.
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