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The Daily Stock Picks Newsletter                                                                        Mitch King

November 19, 2008, Wednesday Evening                                
www.TradeStocksAmerica.com

This stock market is getting ugly and it looks like tomorrow is going to open down as well.  Asian markets are also down by similar percentages, 5-6%,but they are still following our stock market right now.  The down volume outpaced the up volume by 57 to 1 on the Dow Industrials and 68 to 1 down volume on the Nasdaq Composite.  That is extremely high and normally a 20 to 1 reading is very negative.  The Put/Call ratio spiked big and was the 3rd highest reading for this contrarian indicator this year.  The indicator was developed by Martin Zweig, and a high reading on the Put/Call ratio indicates a bottom in the stock market could be near.  When we rally in stocks, this ratio decreases. 

The indices like the Nasdaq Composite and S&P 500 have clearly broken below major support levels and the Dow 30 is approaching that tomorrow if further selling occurs.  The critical point with many stocks have been exceeded on the downside and many indicators that we use to determine bottoms are failing as well.  It is turning into a somewhat panic selling and there is no doubt that redemptions are returning again with both the retail investors as well as the mutual funds. 

Large hedge and regular mutual funds are selling into any buying to raise cash in anticipation that a flood of redemptions will continue.  What is somewhat disturbing to me is that we are not seeing increasing volume in most stocks or indices and there are many indicators that are not showing a cathartic or extreme rapid selling yet.  Ideally, as many indicators together signaling a bottom as possible would put the odds heavily in your favor.  Only 2 out of 6 indicators that I watch are showing a bottom is near.

There is too much risk to open a short position in any stock.  When any substantial bounce occurs, buying will occur so fast, you won't trust it until it has already moved up a lot in the same day or the next day.  Stay with the 3 min charts and toggle between 1, 3, 5, 15 minute real time charts with your broker.  But start gathering your highest quality stock list to buy if or when we have a panic selling day to buy long on a swing (or less likely an intermediate term position).

The VIX peaked at 75 today but did not spike up suddenly, it has been a gradual but steep climb.  We would prefer a sharp vertical spike in the VIX reading.   SKF, the Ultrashort Financials spiked and has formed a nice bullshort chart pattern but with only slightly higher trading volume.  This could go higher tomorrow.

Same story day after day on oil prices dropped another 1.4% today to a lower low at $53.62 per barrel.

I just don't see any reason why stocks are going to rebound yet but intraday trades could have a big day on the long side using the drop and pop pattern that has been the only strategy working well.  Today intraday trades (same day round trip transaction) worked extremely well on the long and short side.

Intermediate Trade PositionsIf you have existing positions, be prepared to hold for several months go see substantial gains.  If you are looking to go long for an intermediate position (1 week to several months), I'd wait longer (days) until we see a substantial bounce.  Any stocks you consider should be of the highest quality fundamentally and time your purchase when the technical indicators are supporting a long purchase at the same time.  So in other words, have the fundamental analysis and technical analysis be coinciding at the same time to buy long. 

Swing TradesRIMM, Research in Motion, did peak and turned to the downside after 2 sharply up days.  There is no trade in this stock except for intraday scalping trades.

Day Traders/Intraday stock ideas:   Continue to look for the drop and pop intraday trading technique to work tomorrow.   Drop and pop stocks:   Many stocks are good candidates for this technique and FSLR, RIMM, IYF, and AAPL are still good stocks for long trades with BRKB as a possible stock to watch for a good bounce.  Many stocks will be good for this technique tomorrow and a substantial bounce upward is very possible tomorrow.  The ideal scenario is the market heads down 200-350 points tomorrow and then reverses upward for several hours in which substantial profits can be made on a long intraday trade.

Last Note:  We are still in a bear market with a strong downtrend.  This recent rally we just had in stocks was just a counter rally within a bear market.  They are powerful and can be very profitable, as you just have witnessed (and hopefully experienced).  We use whatever stock trading technique the market requires from day trades to swing trades (2- days), intermediate trades for months, short selling and long positions.  We can buy stocks, stock options, ETFs or occasionally bonds.

Concluding thoughtsWe are getting close to another rebound like we saw on October 28th through November 4th so be prepared to buy stocks long in gradual increments from the high quality stocks list or your own favorite group of stocks.   Many stocks have already broken below this point and the downward direction is continuing so far.   There is still no sign or catalyst that I can foresee to spark a rally except for such a high amount of selling and valuations become compelling for value players to buy and or short sellers cover.

Intraday trading technique trades still rule in profits with the highest probability for the most profit in stock trades.  If your desire is to not trade frequently and you are looking for stocks to buy and hold for several months, then it would be better to wait until we see a more obvious point at which stocks may rebound substantially for an extended period of time but we are getting close to a rebound that may be more substantial than the October 28th through November 4th rebound.

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.

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 be more than 25-30% 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

Contents:  stock trading, trading strategies, stock picks, stock market education, stock market investing course and educational stock trading videos.

Mitch King is the founder of TradeStocksAmerica.com.  All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Mitch King. Investment recommendations may change without notice and readers are urged to check with their investment counselors before making any investment decisions. Opinions expressed in these reports may change without prior notice. Mitch King and/or the staff at TradeStocksAmerica.com may or may not have investments in any stocks cited above before or after this newsletter is prepared. Opinions expressed in these reports may change without prior notice.

Disclaimer - Stock investing or stock trading has large potential rewards, but also large potential risk. There is risk of loss as well as the opportunity for gain when buying or selling stocks, bonds, option contracts or engaging in any strategy listed in the Daily Stock Report, The Wizard Training Course, The Trading Room and our seminar or workshops.  You must be aware of the risks and be willing to accept the risks when investing or trading in any financial markets. Don't trade with money you can't afford to lose. This website is neither a solicitation nor an offer to Buy/Sell stocks. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results.

 


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