Monday Trading Thoughts for Stock Market

The few days preceding a major holiday have a tendency to be strong for the stock market, so pay close attention to any upside breakouts. Trading will likely be a bit thin this week as many traders are already on vacation. As a result, there could be a little extra volatility Monday or Tuesday, while trading on Wednesday and Friday will likely be very quiet with narrow ranges. Well, that is what history suggests at least!

I just had a chance to read a real estate report I receive annually from PricewaterhouseCoopers called "Emergin Trends in Real Estate." The mood among commercial real estate industry participants is that of doom and gloom, the 2009 forecast is for a sharp decline in commercial property values.

However, as I scan the stock market industry groups for the strongest performers over the last 30 days, the commercial real estate REITS, particularly the retail and hotel variety, are among the top 10 performing industry groups. These stocks have been beaten down considerably since they peaked in early 2007. In fact, at its November lows, the retail REIT sector was down about 80% from its highs. Will the decline in energy prices and interest rates help the commercial real estate market? Maybe not in the near term while jobs are still being lost, but judging from the performance of these stocks, a rebound may be imminent.

Other strong sectors over the last 30 days include residential construction, silver miners, semi-conductors, health care facilities, and casinos. These were also among the big movers on Friday.

Scott Cole
www.theultimatestocktradingsystem.com

Stocks Mixed on Friday on Bush Auto Bail Out

President Bush finally opened the Treasury to the auto industry today, essentially allowing the Democrats and Obama administration to deal with the problem next year. For lending Chrysler and GM $13.4 billion now, and potentially an additional $4 billion in February, the administration required some changes in the way these companies do business, and in particular how it pays its workers. The UAW as already cried foul and will undoubtedly pester the Democrats, whom it contributes millions to, to change this deal for the better of the union. Of course, this won't help the auto makers restructure in the long run, so the government essentially threw good money after bad, which was expected.

In spite of the Dow closing slightly lower today, all of the other major averages were up on the day, and there was good money flowing into those stocks that close up on the day. I really like the chart patterns I see on the Dow and S&P 500, expect some positive price action early next week. Pre-holiday trading tends to have an upward bias.

Scott Cole
www.theultimatestocktradingsystem.com

Stocks Consolidate in Light Trading

The stock market consolidated as traders re-assessed the Fed's announcement after the rate cut yesterday. Although the market averages were down today, most stocks actually closed up on the day, according to statistics provided by Worden Brothers (they produce the TC2000 software I use to scan my stocks).

Overall, it was an uneventful day, although I did not like the fact that Apple closed sharply lower after another downgrade this week. There remains concern regarding the health of CEO Steve Jobs, since he is not giving the keynote address at the upcoming Macworld conference. Furthermore, sales of Apple's desktop computers have been weaker than expected.

The top five performing industry groups today were Information Technology, Resorts and Casinos, Trucking, Semiconductors and Silver.

Scott Cole
www.theultimatestocktradingsystem.com

Stocks Rally on Fed Announcement

Stocks ended sharply higher today after the Fed announced it has lowered its Fed Funds Target to a range of 0-0.25% from 1.0% today. Accompanying this announcement was a statement that the fed will be actively providing capital and purchasing mortgages, among other things, to help spur economic growth.

Prior to the announcement, the Dow was up about 100 points, and it closed up nearly 360 points higher. The Dollar fell sharply against the Euro in Forex trading as the spread in U.S. and European interest rates widened. Late in the day, the 10 year Treasury Yield fell to 2.30%. In short order, we should see fixed rate mortgages drop below 5%. This will help spur some new home buying.

Before the markets opened today, new economic data on housing indicated the sharpest decline in new housing starts and building permits in nearly 25 years. The Consumer Price Index also fell by 1.7% in November.

More to come

Scott Cole
www.theultimatestocktradingsystem.com

Stocks Quiet, Dollar Weakness Continues

The stock market closed modestly lower today in quiet trading at the start of the Fed's two day meeting. Most traders and investors expect another 50 basis point cut in interest rates Tuesday at the end of the meeting, which would bring the Fed Funds rate down to 0.5%. In the present environment, this likely will not have much of an impact.

At this point, the banks are not lending money, as they try to improve their balance sheets. In recent weeks I had noticed a flurry of potential lending activity by smaller banks in our real estate market here in Southcentral PA. This appears to have ceased for the time being.

Overall, I continue to like the chart pattern on the charts of the major indexes. The volatility is falling and the averages appear to be forming a nice base. The fact that the right shoulder in the existing head and shoulders pattern has not been broken to the downside allows me to believe that the general bias of the market will be sideways to up.

For Tuesday, expect a quiet market as traders wait for the Fed decision on interest rates. The cut in rates is already expected, but the Fed statement could move the market.

Treasury futures traded modestly higher today in spite of the weak Dollar. Initially, the dollar weakness helped Crude Oil rally a bit. However, late in the day, the energy markets sold off again and appear ready to test the recent lows again. Silver and Gold rallied a bit today, and Silver appears to be poised for a solid breakout to the upside that projects up to resistance at the 1400 level.

Scott Cole
www.theultimatestocktradingsystem.com

Weekend Stock Market Commentary

The price action in the stock market was quite positive on Friday, considering the bad news regarding the auto bail-out and some weak economic data. Stocks still managed to close higher on Friday, with the Russell 2000 leading the major averages with a better than 3% gain. What we would now like to see is an upside breakout above 1603 on the Nasdaq, 919 on the S&P 500 and 492 on the Russell 2000. These levels represent 4 week highs in the averages.

It was interesting to note that the top five performing industry groups on Friday were REITS, as many of these groups surged at least 10% on Friday. Whether this was a reflection of lowering mortgage rates is yet to be determined. It still does not appear that big banks are willing to lend any money.

Other top performing groups were the casinos, office supplies, semiconductors, and airlines, among others.

Scott Cole
www.theultimatestocktradingsystem.com

Stocks and Dollar Slide in Thursday Trading

The stock market fell today as the auto bailout continues to stall in the Senate. However, one reason the market may have fallen further late in the afternoon was JP Morgan CEO James Dimon's comments regarding 4th quarter profitability at the bank. He indicated that it has been a lousy quarter so far, and December has been particularly bad.

No matter the reason, traders and investors sold stocks today. We are now in a position where the market is in an area of support, and it is important that it holds at these levels and has a strong upside day either Friday or Monday.

All of the major averages now have an inverted head and shoulders pattern in place. This is actually a more ominous sign in that it can act as a powerful continuation pattern in the context of the existing trend if the right shoulder is broken to the downside on these charts. In the S&P 500, the 815 level is the low of the right shoulder. In the Nasdaq, this level is just below 1400.

In my view, this pattern as a continuation pattern is more powerful than at a bottoming pattern, so watch it!

Scott Cole
www.theultimatestocktradingsystem.com

Quiet Day in Stock Market

The U.S. Stock Market for once had a nice and quiet day today, trading within its narrowest range since the shortened post Thanksgiving Day session. Otherwise, this was the narrowest trading range since November 3rd. Overall, it was a choppy session, as traders focused on the potential automaker bail out bill. The House of Representatives is voting on one measure this evening. However, the bill may be stalled in the Senate where Republicans seemed to have been kept out of the loop.

The market seems to be digesting its gains of Friday and Monday rather nicely, and I would not be surprised by another surge upward in the next day or two.

Scott Cole
www.theultimatestocktradingsystem.com

Stocks End Day With Modest Losses

The U.S. Stock Market pulled back a bit on Tuesday. The economic news of the day involved some weak earnings reports and a Republican backlash against the automaker bailout bill presented to the White House by Democratic lawmakers. Politics as usual in Washington!

The big news of the day of course was that Illinois Governor Blagojevic was arrested on corruption charges this morning on charges of selling the soon-to-be vacated Senate seat of President-elect Obama to the highest bidder, among other charges. Politics as usual in Chicago! Ahhh, it's good to be an American!

In other markets, Treasuries managed to rally a bit on the weak earnings data. The Dollar was essentially flat, except against the Yen, which continued its recent run and appears to be ready to test its October highs. Commodity markets were flat to lower today.


After two big up days in the stock market, it was no real surprise that the market pulled back a bit today. I pointed out in my Trade of the Day article last night that the best side to play the market today would likely be the short side. Tuesdays have a tendency to reverse the market after some decent gains in previous trading sessions. The market opened lower, tried to rally, but rolled over after 11 am. Volume was on the light side today, and the trading ranges were narrow. This is the kind of action we like to see on pullbacks if the market is to head higher longer term.

Scott Cole

Stock Market Follows Through on Friday Rally

The stock market followed through on Friday's rally today as Congress sent an automaker bail-out bill to the White House and President-Elect Obama outlined his economic stimulus package. Stocks and commodities appeared to like the news as nearly every commodity showed strength today. Among the top performing groups today were telecom, some tech, real estate and commodity based groups. I've also noticed some strength in home health care stocks, which are among the top performers of the year. A couple of these are popping up on our Ultimate Stocks list, which is slowly starting to build.

Watch for potential for weakness in the market on Tuesday. Tuesday's have a tendency to reverse the trends of the previous couple of days, particularly when a market is extended in one direction or another. However, I believe the current strength in the market can continue at least through the end of the year.

Stay tuned!

Scott Cole

Trading Thoughts for Monday

Friday we finished the week on a positive note in spite of a substantially weak jobs report. Economic data last week was generally awful, and it was also reported that we've been in a recession for a year. The headlines are all negative, yet the market seemed to hold its own after Monday's sell-off. This suggests a change in character. I do not expect the market to shoot straight up from here due to the magnitude of the decline over the last year. The market needs time to make a base, but this base can be made with an upward bias.

A look at the charts of the major averages suggest that we could get a nice upside breakout, and there is no better time to do that than on a Monday. When the market has a bullish undertone, Monday's tend to be nice upside days. Considering the resistance levels lined up just over Friday's close, a lot of stops to cover short positions could be triggered on any strength in the market in the next couple of days. With that in mind, day traders should be aware of these factors heading into the trading week.

Scott Cole
www.theultimatestocktradingsystem.com

Stocks Manage To Rally In Spite of Weak Jobs Report

The U.S. Stock Market ended with a nice rally on Friday, in spite of the weakest jobs report in thirty years. Today's rally recovered all of Thursday's losses, and the week ended with only modest losses in spite of the huge Monday sell-off.

The tone of the market is definitely quite a bit better than it has been over the past several months. However, it will need to breakout of the trading range that has been in place since the October lows in order to have a more sustainable rally.

More commentary over the weekend.

Scott Cole
www.theultimatestocktradingsystem.com
www.bestdaytradingstocks.com
www.kungfutrader.com

Friday/Monday Crucial Juncture for Stock Market

We are now at a point where the market is revisting the October 10 lows, and this appears to be the test of significant importance. It will not really matter if the market blows through these lows tomorrow and closes below them. Of more significant importance will be how the market acts on Monday. No matter what the market does on Friday, we need the market to close higher on Monday, or at least set itself up for a strong Turnaround Tuesday. Nonetheless, if we trade through the October 10 lows on Friday, and we are still trading below them on Tuesday, this market will be heading lower for the foreseeable future.

Keep your fingers crossed!

Scott Cole
www.theultimatestocktradingsystem.com

Stocks Rally In Spite of Weak Jobs Data

In spite of a weak jobs report today, and further concern regarding the auto industry, stocks managed to rally today, ending the dismal decline that began on Wednesday. The government reported that a total of 240,000 jobs were lost in October, slightly above estimates, and September lost more jobs than first reported. The nation’s unemployment rate now stands at 6.5%. Apparently, this bad news was priced into the market over the previous two days, and the market actually may have been expecting worse news. Nonetheless, it was a bad number and a reminder of just how weak this economy is currently.

The market will now be turning its eyes to Washington to see what Congress and the Bush administration, along with input from the income Obama administration can do to stimulate this dismal economy. However, the primary issue is that banks refuse to lend money to anyone at decent terms, even to the most qualified of loan applicants. This is in spite of the fact that the credit markets have thawed dramatically over the last couple weeks as the 3 month LIBOR has dropped from its high of about 4.8% to about 2.3% today.

Until the banks begin to lend money for car loans and home loans, and other business loans, this economy has no chance of improving. The federal bailout has simply allowed the big strong banks a chance to consolidate and strengthen their positions by buying distressed banks. Yet, there does not seem to be any outrage at this in Washington.

More to come!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stock Sell-off again ahead of October Jobs Report

More weak economic news drove the stock market down another 400+ points today, as stocks have now lost almost 1,000 points in two days. The culprit today was weak retail data out of the nation’s big retails, some posting double digit losses in same store sales for October. Furthermore, the Big 3 automakers are seeking more handouts from the Federal Government. Traders suspect that if Congress bails out the automakers, companies from other industries may try to get their hands in the cookie jar as well. This will result in a massive Federal Deficit, and little room for the income Obama administration to maneuver through this economic minefield.

On the bright side, the Oil complex continues its slide, nearly breaking through the $60 level to the downside. Oh, how times have changed since the days of $150 dollar per barrel just a few months ago. Remember this…a trend in motion tends to stay in motion! The trend to the upside was far more choppy than this downtrend. This downtrend is more dangerous as it has not allowed traders many opportunities to enter short positions on pullbacks. Watch for continued low prices on weak economic data.

The other big news of the day was that the Bank of England cut interest rates by 150 basis points, an unprecendented move. The European Central Bank cut rates by 50 basis points. Initially, this was welcome news prior to the U.S. stock market open. But, the weak economic data immediately put a damper on that. The Dollar ended the day a little stronger against the major currencies and interest rates were relatively unchanged. Commodity prices, again, lead by the energies, were generally lower again today.

In regard to tomorrow’s trading, watch for a volatile reaction to the jobs report. The general consensus calls for job losses of 150 to 175K.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Economic Reality Sets In, Stocks Plunge

It looked like today was going to be an inverse mirror image of yesterday, as stocks opened lower, and hovered around the down 300 points on the Dow level for much of the afternoon. Then, once again, the last hour selling kicked in, and the market got clobbered, off nearly 500 points on the Dow and 100 points on the Nasdaq.

The primary culprit today was a week ADP jobs report, a precursor to the government’s own employment report due out Friday. The ADP report held that over 150,000 jobs were lost in the private sector. The market was already lower when this report came out, but trended lower the rest of the day.

Many other markets flip flopped from yesterday as well. The Oil complex, Grains, and Metals all sold off sharply today after nice gains yesterday. Obviously, this was in response to the weak economic data. It is notable that on many of the commodity charts, there are small consolidation patterns within their current downtrends. A break below recent lows will indicate a continuation of those downtrends. This would not surprise me as there are still many analysts on the financial news programs suggesting that energy and commodity stocks are the place to be going forward. Always be a contrarian!

On the other hand, the interest rate futures continued their rally today. It seems that Treasury traders may have been anticipating today’s data yesterday, as they rallied yesterday in the face of a weak dollar and strong commodities. In the Forex markets, the Dollar did not move much today.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks, Commodities Surge on Election Day

The U.S. Stock Market scored big gains as Americans headed to the polls today. Asian markets were up strongly overnight, and the European markets followed suit in the morning. A solid earnings report by Mastercard also buoyed stocks in the U.S. Some pundits, however, attribute the rally as a relief rally in response to polls suggesting a solid Obama victory, and a view toward the future.

Due to the big rallies in stocks around the world today, commodities responded with a big rally of their own, lead by the energies. Crude Oil was up over $6 today, and these gains were mirrored in Heating Oil, Unleaded Gas and Natural Gas. Such a strong day in these markets suggests a bottom of at least short-term magnitude is now in place. Gains in commodities were seen across the board, including the metals, grains and others.

One surprising trend today was the move up in Treasury prices, resulting in lower yields. This was quite odd in view of the strength in the commodity markets, and the weakness in the Dollar against most of the currencies today in the Forex market.

Tomorrow will be another day, and I suspect the markets will at least settle down tomorrow. Later in the week, we have a jobs report that could provide some significant bad news.

Stay Tuned!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stock Market Bides Its Time

The U.S. Stock Market traded within its narrowest range in weeks today, ahead of the all important Presidential Election on Tuesday. Volume was also extremely light, as the markets eked out a small gain for the day. The markets will be watching closely to see whether the Democrats are able to achieve a filibuster proof majority in the Senate. That will allow them to push through any agenda they wish, without any kind of consent from, or compromise with the Republicans. This includes increases in Capital Gains taxes and taxes on dividends, two policy issues Wall Street does not like.

With that in mind, I suspect that the market will sell off a bit if the Democrats achieve that majority in the Senate. Otherwise, I anticipate a bit of a relief rally after the election, no matter who is elected.

In other markets today, the Dollar rallied sharply against the Euro and the Pound again today, reversing the losses of late last week. Treasuries perked up on week auto sales data, as October looks to be the slowest month of sales in 25 years.

Commodity prices were mixed, with the energies sharply lower and grain markets up a bit today.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Weekly Market Re-Cap

As we noticed on Friday, the stock market ended a terrible month on a nice up note. Now we are faced with a huge election on Tuesday, and at this point, it is anyone’s guess how the market will react to a likely Obama victory along with significant Democratic gains in the House and Senate. On the one hand, the financial markets generally do not like the rhetoric that comes out of the Democrats, and the markets generally prefer a government where checks and balances are in place, such as a Republican President and a Democrat controlled Congress. Therefore, an Obama victory could lead to a sell-off.

On the other hand, there could be a relief rally as we finally get past the election and can look forward to a new administration. The focus will then be on the economy and corporate earnings. We already know that the 4th quarter is likely to be weak, but I suspect it may not be quite as weak as expected. I would also venture to guess that the stock market has discounted a significant recession already, and so any economic data that is not as bad as expected will be greeted favorably by the market.

In other markets, Treasury Futures at the long end of the curve sold off sharply again Friday in response to the continued decline in short term interest rates. This week, there will also be a new monthly jobs report, and a weak report could help stem the tide. For now, the trend is down, which means higher long term interest rates. I noted in my newspaper today a significant jump in mortgage rates, with the average around 6.5%. These rates won’t do anything to help the housing market.

The Dollar enjoyed solid gains across the board on Friday, with most strength against the Euro and the Pound. It looks to me that the Yen has likely topped out against the Dollar for now, but it appears that the Euro and Pound may need to test their recent lows against the Dollar before consolidating at these lower levels.

In the commodity markets, Gold was sharply lower, while Crude Oil actually managed a solid gain of nearly $2 on the session. Agricultural markets were generally mixed, with no real big moves on the day.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks Stage Late Day Rally

The U.S. Stock Market finished the day mixed on Thursday, but with an upside bias, as the market managed to rally in the last hour of trading. A look at the daily charts suggests that all of the major averages are re-testing the lows set on October 10th. With this in mind, Friday is going to be an important trading day. If this market is going to put in a bottom, a nice rally on Friday should do the trick. On the other hand, a close below today’s lows can only be construed as bearish.

In other markets today, the yield curve continued to flatten, as the 30 year Treasury Bond enjoyed its biggest one day rally in over 2 weeks. At the same time, the short end of the curve actually sold off. Next week, the Fed meets for a two day meeting, and likely will cut interest rates again.

The Dollar continued to move a bit higher today, but the big currency move of the day was the Japanese Yen. The Yen is trading at its highest level against the Dollar since March, but it is moving upward primarily against the Euro. The Dollar improved against most of the other major currencies.

In the commodity markets, the grain markets enjoyed a modest rally today, the energy markets were mixed with Crude Oil up modestly and Natural Gas down sharply, and Gold continued its sharp slide. Watch for a rally in some commodities if the stock market manages to make gains, and/or if the Dollar pulls back. Many of these markets are extended and due for some consolidation before resuming trends.


Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Bear Market Growls, Stocks Sink

The U.S. Stock Market plunged on concerns the economy is sinking quickly into a deep recession and will not recover very quickly. Nothing but doom and gloom on Wall Street today. Although a few tech and internet companies have reported good quarterly earnings this week, they have expressed cautious outlooks in their reports.

At this point, if you believe everything you see in the media, you would think that nobody will be shopping at Christmas. Yes, there is definitely a slowdown out there, and we have lost a lot of jobs this year. Furthermore, people have lost a bit of equity in their homes, and a lot of equity in their investment accounts.

But, let’s look at a couple positive developments. Commodity prices have plunged further than stock prices, and the Dollar has rallied dramatically, allowing interest rates to stay at low levels. Now, one could argue that a strong Dollar will result in weak exports for the big multi-national stocks. But, the combination of low inflation with low interest rates and activist governments willing to do what it takes to get things turned around, should ultimately result in an economy that comes back more quickly than most expect.

We also have rampant pessimism in the market at this point, which typically signifies a market bottom. Investor sentiment readings published by Investors Intelligence are at their most bearish levels in 15 to 20 years, and this is usually a good contrary indicator.

Still, for now, the focus must be on the price action, and after a promising start to the week, it looks like will be testing the lows again in short order.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Nice Start to Trading Week for Stock Market

The U.S. Stock Market enjoyed a nice start to the week on Monday, with a 413 point advance in the Dow, and sizable gains in the other major averages. Ben Bernanke and Hank Paulson spoke further about their plans to unfreeze the credit markets. Bernanke also supported government plans for a second stimulus plan for the economy. Also, credit markets had eased overnight, with the 3 month LIBOR dropping nearly 50 basis points. As a result, the markets were already motivated to trade to the upside before the speeches, and this simply gave cause for the markets to rally the rest of the day. Incredibly, with the averages up anywhere from 3.5% to 4.5%, when you look at a daily chart, this is the narrowest trading range in the stock market since October 1st.

Unfortunately, when you combine this with light volume, the trading pattern is a little bit ominous. If we are unable to progress significantly further to the upside on Tuesday, and take out today’s lows, we will likely progress downward for a couple days. For now, however, we will take today’s trading at face value, which was a solid up day, under any market conditions. Furthermore, the last hour of trading was strong, suggesting professional buying into the close.

In the futures markets, Treasury yields narrowed a bit today, with selling in the short end of the curve and buying on the long end. 10 Year Treasury Notes enjoyed their largest rally in two weeks.

In the currencies, the Dollar Index closed at its highest level since June 2007, with a new high for the current move off of the April and July lows of this year. The Dollar was strongest against the Euro and Pound today.

Commodities were essentially mixed today with Crude Oil and Gold showing a modest gain along with Corn and Soybeans. Natural Gas was modestly lower, and Cotton reversed its recent short term uptrend with a major reversal to the downside.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

U.S. Stock Market Takes a Nosedive

This was not exactly what we were looking for if a new bull market is to be born from last week’s drop. I was quite certain the stock market would take its time, drifting lower for a few days before either testing last week’s lows, or taking off with a big follow through day to Monday’s huge gains. In the next two trading days, we will have a good idea of what we the market wants to do.

At this point, I get the feeling that the finance ministers of the world feel like they have done quite a bit and are willing to let nature take its course so that the financial system can work through its issues. If they have more weapons to fight this credit crisis, which is still essentially a crisis of confidence, then they are not showing their hand yet.

I was surprised at how weak the market was today. I could understand some weakness was warranted as a result of the weak economic data that was reported today (weak U.S. retail sales for September). However, the stock market has already discounted a steep recession for 2009. Unfortunately, several of the market averages closed below last week’s low closes. Of course, they are still a bit above the intraday lows seen last Friday. But, considering the volatility in the market, it won’t take the market long to test those lows.

So, here are the keys to trading for the rest of the week. If you are on the sidelines, stay there until we get follow through confirmation for this market. If last Friday’s lows are penetrated and the market closes below those lows significantly, look out below! If, however, the market is able to bounce hard after testing these lows, then the final bottom is likely in place. But, I would still wait for a solid confirmation day to put a lot of new money into this market.

There are a lot of people ready to jump into this market if it can successfully test these lows. That smells a bit fishy, except for the fact that a lot of people have been pulling money out of mutual funds and hedge funds in the last week. Last week’s mutual fund redemptions were the highest ever. As such, we are going to have a big battle between the bulls and bears. With all the liquidity being pumped into the market, there is a huge amount of cash waiting to be invested. If we have a successful test, we could see a bigger up day than the 936 points we had on Monday.

However, do not feel like you will be missing the boat by not catching these lows. It will be best to wait until the market settles down. Then, you can sift through the rubble and buy those bargains. But, if we crash through the lows of last week and close lower, another leg down is likely, and the global economy will be in for a world of hurt.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks Pullback after Huge Monday

The U.S. Stock Market finished the day lower across the board today, after a strong open. The most significant weakness was in the Nasdaq averages and Russell 2000 on some tech worries. The market was set to open very strongly, following Monday’s huge gains, and continued strength in overseas markets. However, once Treasury Secretary Paulson and Fed Chief Bernanke presented more information on how the bail-out money will be spent, Stock Index Futures began drifting lower off the highs of the morning, and ultimate the market began selling off early in the session. However, the market finished well off of the lows of the session.

Considering that today followed a historical up day in the market, today’s losses are of no real concern. The market needs time to consolidate and settle itself down. Some traders suggest a test of Friday’s lows will ultimately be required for a new bull market to begin. However, since last week was such an extreme down week, I do not believe a test of those lows is warranted if better days are ahead. There will likely need to be a significant catalyst for the market to trade down to those levels again.

Still, the market needs time to settle down, and likely will drift lower for a few days. Then, the real test will occur, which is a follow through day to the upside. If we see a 400 plus point day in the Dow confirmed by the other averages and on high volume, you can bet that the market will trend higher, at least in the near term.

In other markets today, Treasuries finished the day lower as they begin to price inflation into the mix in 2009. The financial markets are being flooded with liquidity, and this eventually could result in an inflation spike. However, as the stock market sold off today, so did commodities, lead downward by Crude Oil. This activity will keep inflation in check for the time being.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Historic Day for Stock Market

Ok, this was obviously a historic day for the markets, with the Dow Jones Industrial Average up a whopping 936 points on the session, or over 11%. This is the first indication that the market has undergone a change in character, and it is likely we have seen the Bear Market lows.

The ingredients for today’s move were in place over the weekend when the European finance ministers came up with a plan to guarantee new loans issued by struggling financial institutions in order to get the credit markets moving again. This was a part of an overall plan that apparently also being considered by the U.S. Treasury and Federal Reserve.

However, when you step back and take a look at the charts, the major market averages have a long way to go to repair the damage that has occurred over the last month. In fact, the averages are still well below the 13 day moving average that I typically apply to define short term trends.

Now, in order for us to determine that indeed a new bull market has begun, we need to see a follow through day, which we will define as another session where the Dow is up at least 400 points, considering the current volatility in the market. We would like to see this occur in the next 4 to 7 trading days. Bull markets always start in this manner, but of course there are false starts as well.

Not surprisingly, the Dollar pulled back a bit today, but not so much against the Euro, and it actually gained against the Yen. Currency traders are betting that the U.S. economy will eventually rebound ahead of Europe.

Commodity markets were generally higher today, lead by the energy markets. However, most finished well off their session highs. We’ll be looking for short-term trading opportunities to the short side by late this week or early next week.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Did Stock Market Bottom?

The U.S. Stock Market had its wildest session ever on Friday, trading down about 800 points in the first 5 minutes, and then within 30 minutes, trading to near unchanged. A couple more wild swings had the Dow down 700 points later in the afternoon, and then the market traded to about plus 200 in the last hour, before selling off in the last 20 minutes. The Nasdaq and some other averages actually posted positive gains for the session. I noted that Apple was positive all day, finishing up over $8 on the session.

So, what does all this mean for the market? Well, it does appear that we saw capitulation selling at the open on Friday. However, it would have been better if the market had continued lower for at least another 30 minutes, with a rally into the close resulting in a positive close for the session. We didn’t get that, so I am not quite convinced that we have seen the bottom. This may be the type of bottom that requires a re-test before the market can move higher.

However, we have a G-7 meeting over the weekend, and if there is an announcement of a joint effort to ease the credit logjam that is plaguing the markets, then this very well could be the bottom. To ease that logjam, the governments need to guarantee some of these overnight loans between the banks so that they can start the process of real business lending. If whatever plan is announced is accepted by the markets, we should see a rally.

As I have been mentioning in previous commentary, a platform is in place to allow the market to rally once we get through this credit crunch. The Dollar has rallied nicely while crude oil and other energy prices have plunged. Other commodity prices, such as agriculture and metals have also dropped significantly. As a result, we do not presently have an inflation problem. We also have very low interest rates in place so that when banks actually start to lend, they will lend at favorable rates. This should help the real estate market gain some footing through re-financing and home purchases at favorable prices.

Once the market begins to look into the future and see that this issue is mainly a crisis in confidence, then investors will look at some very cheap valuations in equities, and a pile of money should flow into the market.

One caveat may be the political landscape. Unless there is a drastic change in the next three weeks, it seems clear that Barack Obama will be our next president, and the Democrats should be in their most powerful position in decades. We will then see what types of economic programs they propose, and whether they can control spending in Congress.

Stay Tuned!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stock Market Slide Continues

The U.S. Stock Market is now trading like that of a developing country stock market, with another 7% down day in the Dow Jones Industrial Average. There is absolutely no confidence in the markets, and investors are pulling out in droves. Whenever there is a little sign of strength during the day, the selling hits hard. This is mainly due to the amount of redemptions in hedge funds and mutual funds, as investors in these vehicles want to sell out. These trading firms are also being forced to raise cash to cover losses in other markets. The end result is that nearly every stock is just getting hammered without prejudice. Even IBM, which reported good earnings overnight, closed down almost 2% on the day.

If you are invested in this market, this is a time to turn off the TV for six months and maybe have a look at your portfolio statement then. Markets that go up or down this fast tend to reverse and go back in the direction from whence they came just as fast, at least for a bit, until equilibrium is found, and the market can form a new base to work off of in the long run.

If the money you have invested in the market is not needed for at least a couple of years, stand pat. The market will come back eventually. If you have cash on the sidelines once the market has found its bottom, it will be when of the best buying opportunities of your lifetime.

So far this week, the Dow Jones Industrial Average is down over 18%. There have only been two other such occasions in the last 80 years….the week of the 1987 crash and the beginning of the 1929 crash. The difference this time around is that the market peaked a year ago, whereas in 1929, the crash was only 8 weeks removed from its top, and in 1987, the market crash was also only 8 weeks removed from its top.

In 1929, there was a couple more weeks of pain before the market rallied nearly 50% from its lows over the next few months. However, the government was slow to react to the economic issues of the day, and there were clearly valuation excesses in place.

In 1987, the Fed was very quick to react, adding liquidity instantly to the markets, resulting in a bottom for the market, which rallied 30% over the next six months, and within less than two years, was making new all time highs.

I think it is safe to say that governments around the world are not standing still, but are actively adding liquidity to the markets and attempting to solve the other issues troubling the financial markets. With that in mind, I would suggest that a bottom of significance will be in place in the near future.

In other markets, Treasury futures continued to sell-off today as the yield curve continues to steepen with all the liquidity being added to the market. This suggests that Treasury traders are convinced that inflation will be an issue to worry about next year, and is the main concern, rather than economic weakness.

The Dollar also strengthened a bit today, while crude oil futures dropped under $85 in after hours trading, and Gold pulled back $20 by the end of its trading session.

In the near future, Kungfutrader.com will begin a new newsletter that will cover the stock market as well as futures markets with trading ideas for all of these markets discussed in this blog.

Stay Tuned!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Global Interest Rate Cut Boosts Stocks

A coordinated global interest rate cut is boosting U.S. stock index futures ahead of the open this morning. The Fed cut both its Fed Funds rate and Discount rate by 50 basis points in a coordinated move in response to deteriorating stock markets that are threatening a steep recession in coming months. Ahead of the announcement, Asian stock markets were crushed over night, and European markets were selling off hard as well. Dow Jones futures were off as much as 350 points. After the announcement, Dow futures spiked to a positive gain of 150-200 points.

Stay tuned!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stock Market Slide Steepens

The U.S. Stock Market closed at session lows, as selling accelerated in the last hour, leaving the Dow Jones Industrial Average with a 500 point loss after trading higher earlier in the session. The market started to head lower shortly after the positive open, and selling began in earnest during and after Fed Chairman Bernanke’s speech. As I write this blog this evening, Asian stocks are plunging further.

There is not much else to add, except that it does appear that the markets are in the capitulation phase. The rate of descent is simply too fast to continue for much longer. However, there is the possibility of a very scary sell-off this week that could finally trigger the final capitulation.

Aggressive traders who are able to follow the markets intraday should pay close attention, because there is an opportunity at hand. When this market decides that enough is enough, the reaction to the upside will be violent. ETF’s may provide a decent vehicle to capitalize on this situation.

An ideal intraday setup will look like a double bottom after a steep drop early in the session. The market will make an intial low, off of which it will bounce a bit. The market will then test this low and bounce violently to the upside, and this is when aggressive traders can put on a position.

Another scenario may just involve a rubber band that is stretched way too far. In this instance, a huge sell-off will run out of steam, and the market will react violently to the upside. This scenario is more difficult to trade. In the case of the S&P 500, if there is a big sell-off early in the morning, and the market then proceeds to rally off of that low by 40 whole points (say from 950 to 990) by noon, then you have quite likely seen the bottom.

If you are a long term investor, and not a risk taker, these scenarios will offer good opportunities to add to long term positions at bargain prices.

Keep in mind that the markets are acting purely on emotion right now. Fundamental analysis has been thrown out the window. It has been quite painful for long term investors to watch their portfolios dwindle, but this should be viewed as one of those few major buying opportunities of a lifetime, similar to the recovery from the 1987 crash, and the end of the 2002 bear market. Still, traders and investors must continue to be careful in this environment.

In regard to any potential Ultimate Stocks, it will likely be at least six months after the low is in place until the candidates we seek will be trading in a manner that will allow us to capitalize on major new uptrends. This is why we should focus our attention on trading indexes, ETF’s and mutual funds to enhance portfolio profits.

Stay calm, stay cool…the opportunity will soon be at hand, and possibly as early as Wednesday!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Weekly Stock Market Re-Cap

The U.S. Stock market ended the week at its lows, finishing off one of its worst trading weeks on record, even after the House of Representatives passed the financial bail-out bill passed down to it by the Senate. This was entirely expected, but the market had already shifted its focus to the economy. The economy appears to be spiraling downward at an accelerating rate, as evidenced by the employment data released Friday morning, indicating job losses of 159,000.

No matter who is elected president now, he will be faced with an economy in recession. If Obama wins, expect some significant new economic policies and regulation, with a Democratic controlled Congress. I was encouraged by Speaker Pelosi’s speech before the vote on Friday, indicating some focus on balancing the budget. However, in a recessionary environment, this will prove to be impossible. However, it is clear that at the very least, Obama seems to have a vision, whereas McCain has not laid out a coherent economic plan, and that is why he is falling further behind in the polls.

The rhetoric from the campaigns over the next four weeks may determine whether the market can put in a bottom. A market that closes at its lows on Friday is a market that will continue to head lower, at least for another day or two. However, such a large down week indicates that the market is now severely oversold. Lower prices, and then a big reversal may be what this market needs to put in a bottom.

Technically speaking, the market has retraced two-thirds of its gains from the 2002 lows, and current prices are where some followers of Fibonnaci would seek a bottom. The S&P 500 is now 35% below its closing high of 2007. This ranks the current bear market as a worse than average bear market. However, none of this means a thing in reality. The trend is down, and investors and traders need to stay very defensive.

In other markets, the Dollar retained its gains by holding steady on Friday, while Crude Oil finished unchanged, but down for the week. Treasury futures were largely unchanged on Friday, and agricultural commodities had a downward bias, after big losses this week.

In early Asian market trading Sunday evening, the Dollar is rallying further against the Euro, and Asian stock markets are significantly lower.

Stay tuned!

Scott Cole
www.theultimatestocktradingsytem.com
www.kungfutrader.com

Stock Market Sinks on Economic Worries, Dollar Soars

The U.S. Stock Market shifted its focus to the actual economy today after the Senate passed its version of the financial bail-out plan Wednesday night. Weak employment and housing data over the last couple days has focused the market on actual economic data, which is likely to get worse before it gets better.

Surprisingly, the Dollar has been able to rally very strongly over the last couple of days, particularly against the Euro. Today, this strength spilled over into Gold weakness, as commodities continue to sink across the board. It was notable that many of the stocks that lead the market to its peak in 2007, the agricultural related stocks, coal stocks, and the dry bulk shipping stocks, continue to sink, and many actually made 52 week lows today.

Although the U.S. Government is ready to provide a huge bail-out plan that will include lots of new spending and the printing of more dollars, the markets are suggesting that inflation is not of concern in the foreseeable future. The air in the commodity balloon continues to be let out, and leading economic indicators such as the industrial metals, aluminum, platinum and copper, continue to drop. Oil is now ready to test its mid-September lows while gasoline and heating oil have already gone through those lows.

The bottom line is that these are positive developments, and once we get through this current credit crisis, and normalcy returns to the financial system, the stock market will begin to look forward. With commodity prices falling, the Dollar rising and interest rates remaining low, the platform will be in place for the market to begin a new bull market. UNLESS…the next administration decides to screw things up by raising any kind of taxes. If there are tax increases on business and the top income earners in the country, those that provide the jobs, the recovery will be slowed considerably. The financial bail-out will do nothing if jobs continue to be lost.

Stay tuned!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stock Market on Hold Ahead of Senate Vote

The Stock Market was essentially in a holding pattern today after a big rebound on Tuesday as the Senate gets set to vote on a new financial bail-out plan based on the one put forward by Treasury Secretary Paulson. As I write this blog this evening, the Senate actually passed the bill with over 70 votes.

In the near term, this should benefit the stock market. By near term, I mean Thursday. On Friday, we get a new employment report, and the focus will be on that part of the economy. The current problems will still be present, but hopefully passage of this bill will help to unfreeze the credit markets to help the economy get moving.

So far this week, the reaction of the Dollar has been quite positive, and if that continues, that should help things immensely. Also, Crude Oil seems willing to stay below $100 per barrel, and gas futures prices have been dropping even more quickly.

What we want to see going forward is some stability over the next few days and then weeks. If the credit markets can stabilize and lending activity picks up, we may have seen the worst of these market conditions.

Stay tuned!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Inept Congress Fails to Pass Bail Out - Stocks Plunge

The U.S. Stock market was down over 7% across the board today, the biggest one day drop since 9/11/01, as the House of Representatives failed to pass the Paulson bail-out plan. The fact is, there is absolutely no leadership in the U.S. Government at the present time, and neither presidential candidate offers a decent alternative to the current administration.

We now have a situation where the U.S. Government has actually gotten in the way, and made things worse than what they could be. The roots of this issue go back to the early 1990’s when the government wanted to make it easier for mortgages to be available to homeowners that normally would not qualify. This was part of the Community Re-Investment Act. Easy money provided by Alan Greenspan put more air in the balloon, and the whole world thought that real estate values would rise into eternity, a classic bubble. The bubble burst, credit conditions became tight, and the Fed and the government failed to act over a year ago when it became apparent something needed to be done.

We now have the most partisan Congress in history when the country is in need. We also have two presidential candidates that do not have a clue about how to get this economy back on track. Obama wants to increase taxes the richest Americans, those that typically are in a position to provide job opportunities, while sending money to the middle class. The fact is, those people will lose jobs, and will simply use that money to make a mortgage payment or two. He also wants to spend hundreds of billions of dollars on new spending initiatives, particularly involving health care.

On the other hand McCain clearly has no coherent economic plan at all. He only suggests cutting spending in Washington, which will be impossible to do with a Democrat controlled Congress. He may want to cut some taxes, but that will also be impossible since this bail-out plan will eventually get passed, albeit in a different form. He will have to make concession after concession, and as long as the current Democratic leadership remains in place, he will get no meaningful bi-partisan legislation completed.

As a result of the debacle in Congress and the stock market today, Treasuries rallied strongly, and surprisingly, the Dollar rallied today, while Gold was also up. Based upon recent trading, it doesn’t make a whole lot of sense for all of these markets to move in the same direction, so I view it as a one day anomaly. There is no surprise that the Treasury futures rallied on a flight to quality move. Also, since Crude Oil plunged along with most other commodities, the inflation issue is temporarily off the table, and that also helps Treasuries. If the Dollar can also continue to rally, my original thesis that strong underlying fundamentals could eventually help the economy and stock market get back on track. However, a deepening of the current crisis will undermine this thesis no matter how low interest rates can go and how high the Dollar can rise, at least in the shorter run.

Still, for long term investors, this is looking like a fabulous opportunity to start accumulating shares of high quality companies that sell products that consumers use on a consistent basis. And clearly, it could be a terrific opportunity to re-examine companies that deal in alternative energy and have pulled back significantly with the market. Do not attempt to catch a falling knife, wait until it appears to have hit the ground.

For traders looking for hot momentum stocks, this is clearly not the environment to look for these stocks, unless you are good at shorting stocks. Aggressive traders on the long side should stay in cash, but continue to monitor these strong stocks for when the market bottoms.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stock Market to Open Lower on Monday

The U.S. Stock market is set to open much weaker Monday morning in spite of the fact that Congress appears set to pass the Bush/Paulson financial bail out plan, althought it may be a close vote in the House of Representatives. News that Wachovia is being bought out by Citigroup is pressuring the market, along with concern that the bail out package may not pass in its current form.

Nasdaq stocks are being pressured by some downgrades to Apple as consumer spending is likely to slow in the coming months.

In the face of the forecast economic weakness, Crude Oil is dropping sharply this morning, and the Dollar is rallying as a result.

Stay Tuned!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Weekly Stock Market Re-cap

The U.S. Stock Market ended a tumultuous week on an up note, in spite of the fact that Congress did not pass the Bush Administration’s financial bailout plan. The Dow finished with a triple digit gain, although the Nasdaq indexes finished modestly lower.

In consideration of the bad news that came out on Friday, the market’s performance was nothing short of miraculous. Overnight Thursday, the government forced a buyout of Washington Mutual, the largest bank failure in U.S. history. J.P. Morgan ended up buying the bank for a mere $1.9 billion. It was also reported the 2nd Quarter GDP was actually a bit weaker than the 3.3% growth originally reported. Also, housing data came in very weak for the month of August. And finally, Research in Motion (RIMM), came out with an earnings forecast well below market expectations, which sent the share tumbling nearly 30%, weighing down the tech sector.

Incredibly, the Dow Jones Industrial Average and S&P 500 managed to post decent gains on Friday, while the Nasdaq tried hard to claw its way back to breakeven, falling a little short. Does this mean we no longer need the Bush bailout plan? The public remains skeptical, and we continue to hear both sides of the argument. Credit markets have clearly frozen up, so some sort of plan is required. The question is, does it need to be this big government bailout, or is it something the private sector can fix with some creative solutions? And, does it really need to happen this quickly in order to avoid Armageddon in the financial markets on Monday?

The end result of the week is that the major averages closed lower than the previous week, but still well above last week’s lows. The trend is down, but we could possibly be set up for a test of last week’s lows and a rally from there. A number of indicators suggest there is some divergence at last week’s low. A re-test and bounce off of that low will confirm that.

In other markets, Treasury futures prices managed to rally a bit on Friday due to the weak economic data. The Dollar managed to hold relatively steady on Friday, as it was generally mixed against the major currencies. In the energy markets, the focus seems to be returning to global economic weakness as the driving force behind price direction. Crude oil closed down a bit over a dollar, while Natural Gas appears to be resuming its downtrend.

Gold and Silver prices were up modestly on Friday, but were up significantly for the week. These markets are in neutral after significant rallies off of their lows in the last couple of weeks due to this current financial crisis. A big bail out plan that suggests inflation is in our future down the road will move these markets higher.

In the grain markets, it appears that Corn, Soybeans and Wheat are all ready to resume their downtrends as it appears that the current crop situations, and supply and demand factors indicate that lower prices are in order. Most other commodity prices appear to be heading lower as well, with the exception of Cocoa and Sugar.

Stay flexible!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Congress fails to pass Paulson Plan, Stocks Open Lower

The U.S. Stock Market is opening lower this morning as Congress failed to pass the Paulson bailout plan on Thursday. Talks broke down over night as Republicans in the House of Representative have balked at the huge cost of the plan.

2nd Quarter GDP figures have also been revised lower, and some stock earnings reports came out very weak. RIMM presented a disappointing outlook for later in the year, and KB Homes reported weak home sales.

Stay Tuned!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stock Market Slide Continues

The U.S. Stock Market continued its downward slide today as Congress is not yet ready to sign off of Treasury Secretary Paulson’s $700 billion plan to shore up the U.S. financial system. It is no surprise that there is a bit of a rebellion against the plan due to the sheer cost. The debate is of course the lesser of two evils…take your chances and see how things end up, or spend the money and hope the plan works, knowing that it will cost the taxpayers dearly.

I don’t envy the position our politicians find themselves in, but the fact is, many of them are part of the problem. And now, we are watching them all point the finger at everyone else but themselves. Par for the course in Washington, D.C.

As I have stated over the last week, traders simply need to stay cautious until the markets settle down. You don’t need to trade! All of the rules in the playbook have been thrown out in recent weeks and months, so the best thing to do is wait for a return to normalcy. Even if you are simply a daytrader, the whipsaws in the market have been enough to cost you big time, so you at least need to scale back your trading size.

Sooner or later, the markets will settle down, and whichever trend emerges, be prepared to hop on. In spite of the volatility in the markets in recent days, and some big moves in commodities and currencies, I still see many of the underlying trends have remained in place. Keep that in mind when you decide to plunge back in!

Good Trading!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stock Market and U.S. Dollar Plunge - Ugly Monday

The U.S. Stock Market plunged about 4% across the board today as worries continue to mount regarding the crisis in the financial sector. Over the weekend, the government asked Congress for $700 billion for the bailout plan. That sent the Dollar into a tailspin as it is clear that U.S. government debt will rise at an unprecedented pace.

Whether or not this bailout plan is needed or not is not the issue. The financial markets are in a tailspin, and going forward, it is clear that the U.S. economy, and likely the global economy, will be weak in 2009. The next U.S. administration, whether it is Obama or McCain, will have its hands full, and you can pretty much forget about any kind of tax break next year.

As a result of the Dollar weakness, and the fact that the Treasury will be printing dollars at a fast pace in the near future, commodity prices took off to the upside today. The October Crude Oil contract, which expires this week, was up over $21 per barrel at one point. Gold rose back above $900 per ounce. Treasury yields jumped significantly. Can you say STAGFLATION!? With oil prices appearing set to test $150 again in the foreseeable future, there is no way the global economy has any expansion. A colder than normal winter will send heating costs soaring, and as a result, the holiday spending season will likely be weaker than normal.

I am not in the business of forecasting stock market prices or even direction. But, it doesn’t take a genius to figure out that with the current conditions in place, it will be difficult for the market to go up. Just last week I wrote that the underlying fundamentals suggested the economy and the stock market could get through this current crisis and set up a rally into the end of the year. However, with the Dollar pulling back sharply, Treasury yields rising and Oil prices ready to soar again, it looks like those positive fundamentals were fleeting.

Today is just one trading day, and you can’t really forecast direction with one day. But, alot of other negative things have occurred in the last few days that suggest this market has a lot to overcome.

Stay Cautious!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Weekly Stock Market Re-cap

The funny thing about the stock market this week is that it ended the week virtually unchanged. Of course, it happened to be an incredibly volatile week as well. Historically though, we have seen higher volatility, and we have seen worse down markets.

So what does this all mean going forward. Well, over the weekend, it was reported that the cost of this mortgage bailout is going to be at least $700 billion. Hmmm…do you think there are going to be any tax cuts next year, no matter who is president? If anything, we can probably expect a tax increase before any tax cuts.

Over the next few days and in coming weeks, the market will digest the impact of this past week’s events on the economy. Based upon the reported cost of cleaning up this mess, it is quite possible the impact will be deemed as somewhat negative. What we will need to see is a return to normal trading in terms of volatility and volume, and then ultimately, the market will show its hand in terms of which direction it wants to go.

Pay close attention to the performance of the Dollar and interest rates going forward. If the Dollar can stay within its current uptrend, while interest rates remain favorable, there may be a chance for the economy to still recover. Again, after the election, we enter a seasonably favorable period for the stock market. For now, caution should rule the day.

Good Trading!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

A Crazy Stock Market

Stocks enjoyed a huge boost today from the Federal Government, which seems to be coming together on a plan to deal with all of the bad mortgage debt that has been the root cause of the seizure in the credit markets. The details of the plan have not yet been agreed upon, but the overall concept appears to be gaining traction.

As much as stock traders were acting irrationally when the market was heading down, I noticed a good bit of the same today. Take T. Rowe Price (TROW), a mutual fund company based in Baltimore. The stock traded in a range between $53.00 and $70.00 today. This is just your typical mutual fund company that happens to trade with some volatility. However, what were traders thinking when they were buying the stock at $70 today? This is a 52 week high in price by nearly $5! I noticed some small bank stocks that such as Trico Bancshares (TCBK) that have made new all time highs (up 46% today alone to over $32) when just in July this stock was at new multi-year lows under $10.

The point being made here is that it is still a good time to be cautious. Wait for this market to get itself sorted out, and then the new leaders will emerge. Sometimes the best thing to do is just to sit tight.

Will write more over the weekend.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Government Intervention to Boost Stocks

The Federal Government has taken more steps to boost confidence in the financial markets, and this is sparking a huge rally in futures ahead of the open. The Dow futures are set to open up 400 points this morning on the back of this news, which includes banning short selling on some financial stocks. The government is also providing a back stop to the money market funds.

Investors are piling into the market as a result, however I still believe traders should use some caution here. An important bottom has likely been put in at yesterday’s lows, but it is important to let things shake out for a while. Once the markets have calmed down, traders and investors can resume using their normal methodologies for picking stocks.

Enjoy the weekend!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Key Reversal for Stocks?

The U.S. Stock market ended a roller coaster session with substantial gains today, when rumors that the government may set up a Resolution Trust Corporation type facility to deal with the residential mortgage mess that has lead to the freeze in the credit markets. Clearly, the market welcomed the news, as the major averages gained anywhere from 4% to 6%. In fact, the Nasdaq Composite actually closed above yesterday’s highs, as did the Russell 2000. Even more amazing, the Russell 2000 never came close to trading below its July, March and January lows.

As I have mentioned in prior posts, September is often the weakest month of the year for the stock market. Downtrends often accelerate in September, and bottom in October. I believe we may have put in an important bottom today. This bottom was accompanied by a significant spike in the VIX, which peaked over 42 today, the highest level of this bear market. It then reversed and closed about 33, down from yesterday’s close of over 36.

There were significant reversals in other markets today as well. Gold was up significantly again today, but after pit trading hours, was actually lower on the day. The Dollar also reversed its losses.

Friday brings a new trading day and we hope to see some sense creep back into the market, and a lessening of the volatility. What we do now know is that the Fed and Treasury, along with other central banks across the globe, appear to be willing to do what it takes to achieve stability in the financial markets. Once that stability returns, the underlying fundamentals in the economy will be allowed to take hold. It will likely take a couple years for the residential real estate market to fully recover, and hopefully, new credit requirements will not be too tight when borrowers seek to achieve the American dream of owning a home. Today looks like a first step towards the process.

In the coming days and weeks we will look for a good follow through day off of this low. I do not expect this market to go straight up from here, especially since we have an election ahead of us in seven weeks. Expect a period of consolidation, and quite possibly, new lows. Once we get past the election, the market will be free to do its thing, and that will hopefully involve a new bull market!

Good Trading!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Blood In The Streets! Stock Market Debacle Continues

Not much that can be said about today’s stock market debacle. Everyone is aware of what is going on. Wall Street is in a panic, and pretty soon, Main Street will be in a panic. All we are hearing in Washington is the blame game. The Democrats blame the Bush administration, the Republicans blame the Democrat led Congress, and they all blame Wall Street. In our own towns, borrowers blame lenders for unfair lending practices, and plenty of people blame appraisers for inflating property value estimates. There is plenty of blame to go around, and the only people that get hurt in the long run is us regular people on Main Street.

At this point in time, in light of the extraodinary circumstances facing the market, it is best to stay on the sidelines, until all of this shakes out. Don’t get greedy! The greedy pigs on Wall Street and in the real estate industry are getting slaughtered. There is clearly Blood in the Streets, which means that this will ultimately become a significant buying opportunity for long term investors. But, there will be more pain to come. Let the market tell you when it is time to start buying.

Today, the VIX closed over 36, and is now just below its yearly highs. It still has a ways to go to reach the peak seen in 2002, which was near 57. That marked the bottom in the great bear market that began with the bursting of the tech bubble. I am not sure we will go much lower from here due to the number of big name financial stocks that have fallen 90% from their peaks. There will clearly be a re-shaping of the financial industry, and likely a lot more regulation. Ultimately, good companies in good businesses should thrive going forward, and many are trading at bargain prices.

Once the market puts in at least a short term bottom, there are some high momentum stocks that are just itching to jump higher. They are currently trading within UPTRENDS, but consolidating as the market goes in the toilet. These are the stocks that will be the leaders of the new bull market.

In the futures markets today, everything was turned upside down. Crude oil was up, Gold had its biggest one day up move EVER, and the Dollar got crushed. The Treasury market rallied today as the broadening crisis on Wall Street will clearly lead to a slowdown. Housing market news was also negative, as housing starts slowed and permits declined. However, this will help the market eat up some of the huge overhanging inventory.

Keep your chins up! Tomorrow is another day and the sun WILL rise!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks Reverse, Government aid to AIG

The U.S. Stock market arose from the depths of despair today after a shaky start. Stocks rose in spite of the Federal Reserve holding steady on interest rates, much to the chagrin of floor traders, who booed the announcement at 2:15 pm ET. Initially, stocks sold off a bit, but finished with a strong final hour on news that AIG would potentially get some help from the government. As I write this commentary, CNBC has announced that AIG will get a bridge loan from the Fed, and the government will take a big stake in the company. In electronic trading, stock futures are popping up on the news.

The Fed’s explanation for holding steady included a continued worry on inflation and the fact that the Fed’s previous interest rate cuts have yet to work their way through the economy. Rates are already quite low, and it is really just a matter of banks beginning to ease lending requirements to get this economy moving. Easing lending requirements will help the real estate market recover. In just the last couple of weeks, mortgage rates have finally come down over 50 basis points.

After the Fed announcement, interest rate futures reversed course and closed lower on the session, at session lows. The Dollar rebounded from earlier losses and posted a modest gain. It remains my contention that the stronger Dollar gives the Fed much more leeway and flexibility going forward if economic weakness persists.

In commodity markets, Crude Oil dropped another $4.00 to just over $91 per barrel. Most other commodities were lower again as well. Commodity markets are generally dropping on continued global economic worries.

In regard to the stock market, it is still clearly a time to use caution. However, a sizable rally on Wednesday could signify a successful test of the July lows. Furthermore, the VIX made a new high over 32 today and reversed, closing below yesterday’s close. It has clearly formed a spike on its chart, and it spiked above the July high. We are getting some so-called blood on the street, with the bankruptcy of Lehman Brothers leaving thousands unemployed. The recipe for a new bull market is clearly in place…a stronger Dollar, declining commodity prices and low interest rates. Maybe John McCain actually did have it right!

Stay with the trends!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Weekly Market Re-Cap

The U.S. Stock Market closed a mixed week on a mixed note Friday, as many eyes were focused on Hurricane Ike in the Gulf of Mexico and its potential devastation on the Houston oil and gas refining areas. As I write this, it is still unclear what the final damage will be, but gasoline prices have spiked in response to at least a slight temporary shutdown of these refineries, which produce 20% of the gasoline in the country.

The other major news Friday was that the Treasury Secretary Paulson indicated that there will be no taxpayer funded bailout of Lehman Brothers, which then looked for buyers of the company. Market pundits suggest a deal may be struck by Sunday.

Clearly, not much could be determined from the price action of the market on Friday. If anything, it was relatively cautious. I suspect their could be fireworks on Monday. This week will be a big options expiration week as well, so look out for potential volatility. The overall tape is still pointing to down as the favored direction.

In the futures markets, the big move of the day was the U.S. Dollar, which sold off hard against most major currencies. Traders are betting on the potential for a rate cut later in the year. However, interest rate traders did not necessarily share that view, at least on Friday, as prices fell, resulting in the highest yields of the week. Due to the size of the move against the Dollar on Friday, it is a good bet at least a short term top is now in place. This has been a sizable move over the past couple of months, and the Dollar will likely need some time to consolidate much of these gains.

Traders in the energy markets remained cautious ahead of Hurricane Ike on Friday, but we will likely see a spike on Monday. Other futures markets were primarily mixed on Friday, with some strong moves in Gold and Copper.

Stay with the trends!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks Stage Late Day Rally

After charging lower early in the session, the U.S. Stock Market staged a late day rally that carried it to over 1% gains nearly across the board. The lone exception was the Russell 2000, which ended with a far more modest gain.

The main focus early in the session was the continued problems faced by Lehman Brothers, which lost another 40% in value today, and is now over 90% below its 2007 highs. Later in the day it was reported that top executives at the firm are considering the sale of the entire company, rather than just pieces. Wall Street seemed to like that news, and that allowed the market to rally.

It is worth noting that the major averages are in the process of testing significant lows. Today could be a short term bottom, but there still does not appear to be the type of capitulation we would like to see to market a longer term bottom. Although the Dow was down as much as 150 points earlier in the day, we probably need to see it down at least 300 points, and then see a reversal that carries it up a few hundred points of that session low. Another issue is that the VIX closed at under 25 today. This indicator needs to rise to over 35 in order to mark a significant bottom.

In the future markets, commodities were generally lower again, led downward by Gold and Silver. Crude Oil was also lower, but due to the impending impact of Hurricane Ike on the Houston area refineries, gasoline was up a bit today. Crude Oil is getting perilously close to the $100 level, trading as low as $100.10 on the October contract, before closing just under $101. This is in the face of OPEC indicating a 500,000 barrel per day cut in production. I guess those folks have no interest in maintaining a strong global economy! Fortunately for us, most of the producers have no other source of income so they will likely produce above the quota in order to maintain their cash flow.

The Dollar continued its rise against most major currencies today, and Treasuries were steady to higher today, as yields dropped modestly.

Although I continue to believe that the foundation is being laid for a new bull market, as I have said before, some sort of major capitulation is likely needed before we can see the beginning of a new bull move. However, it is possible that a meandering bottom can be put in without this capitulation, but the new bull move should begin with a violent move to the upside.

Stay with the trends!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks follow through on downside

The stock market followed yesterday’s losses to the downside amid continued concern regarding financial stocks and a weak housing market, along with some inflation concerns. PPI data came out hot this morning, more than double the expectations, and at the same time it was reported that new housing starts declined to 17 year lows. As a result, stocks opened lower, but really did not extend the losses much further. However, volume was a bit higher than yesterday.

Due to today’s follow through losses, it now appears that the markets are gearing up for another re-test of the lows. Clearly, the Dow and S&P 500, burdened by weak financial stocks, will reach their lows far more easily than the other averages.

Our lone Ultimate Stock, AXYS, crashed and burned through its initial stop loss today, unable to hold up under the weight of a down market since it broke out last week. In this market, such trades should be taken with less leverage than when it is clear that the we are in a Bull Market. As a result, we are back to 100% cash.

Scott Cole
www.theultimatestocktradingsystem.com

Monday doldrums for Stock Market

The U.S. Stock Market ended Monday with sizable losses, pressured by financial stocks once again. Over the weekend, Barron’s printed an article in regard to Fannie Mae and Freddie Mac that did not sit well with the market. As a result, all of the major averages were down over 1% today. On the bright side, volume was light, and although 1.5% losses on the averages used to be a big deal, in the present market environment, it is not. Therefore, I am not convinced that the rally off of the July lows is over. The Russell 2000 and Nasdaq remain above their intermediate term moving averages. Also, sentiment appears to still be somewhat negative, in spite of the rally off of the July lows. Now, if we have another day of losses on Tuesday similar to today, or 25 point down day in the S&P 500 with a 45-50 point down day in the Nasdaq later this week, then it is likely that another re-test of the Bear Market lows is required. Stay tuned.

Our single Ultimate Stock Position, AXYS, was off modestly on very light volume today, and remains almost $3.00 below its breakout price of $76, but still quite a bit above its stop loss level.

Stay with the trends!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks shrug off inflation news

The U.S. Stock Market shrugged off a weak open caused by a strong CPI inflation report, indicating an annual rate of inflation of 5.6%. Stocks opened at their lows and traded higher for the balance of the day, although closing a bit below their highs. Once again, tech stocks led the Nasdaq to the strongest gains, with the Russell 2000 not far behind.

The Dollar was again a big winner, particularly against the Euro. Treasury futures showed relatively little movement today, in spite of the strong inflation reports. That report was balanced by continued weak jobless claims data.

Yesterday’s rally in the energy futures proved to be a one day wonder as gravity continues to pull on Crude Oil. Corn continued its recent rally, but Soybeans and Wheat stalled. Metals were a bit lower today.

Our one Ultimate stock had a difficult day today, as was somewhat expected due to yesterday’s price pattern. After a weaker open AXYS trended higher for most of the day, ending well off session lows. We continue to monitor a few other stocks that are poised to be added to the portfolio on future rallies.

Stay with the trends!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks Fall, but Dollar posts 5 month highs

The stock market ended with some sizable losses Thursday after some weak earnings reports, and a continuing higher trend in jobless claims spooked the market. However, the Dollar managed to rally to hits highest high and highest close since February, suggesting its downtrend is finally over. Over time, this should help to dispel the inflationary worries, and keep interest rates from rising too far, which will be bullish for stocks. In fact, Treasuries were off to the races today as well, as 10 Year Notes closed at their highest price of the last couple of weeks, and appear set to test their July highs.

As such, even though today was not a good day for stocks, there underpinnings developing that should be bullish for stocks in the long run. A weak dollar has helped with our exports, but ultimately, a stronger dollar will keep interest rates from rising too much, and may allow the Fed to ease rates if the economy becomes too weak.

Since the market purged the big winners of the year among the coal and energy related stocks, there are just a handful of stocks that have emerged as potential candidates based upon our Ultimate Stock Trading System. As of this writing, the system remains in 100% cash. Once this current rally ends, or goes through a consolidation period, a couple stocks should provide the low risk opportunity we seek to enter a new position. In the meantime, these sizable daily swings are providing good daytrading opportunities. We offer a daytrading e-book that may be found at www.bestdaytradingstocks.com.

Good Trading!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

2 Day Rally for Stocks

Stocks rallied nicely for the second day in a row, in spite of a big move up in crude oil of over $4 on a decline in gasoline stocks. The market opened higher and continued up for the rest of the day, as traders are becoming more convinced that the bottom is in for financial stocks. Jim Cramer also proclaimed that the bear market is dead! Well, it is quite possible that this may be the case, as the market has shrugged off the big down days of last week, and is ready to test the July highs. However, there is still some major data due out the rest of the week, and this market seems capable of turning on a dime, so tread carefully!

As mentioned, Crude Oil was strong today, up over $4 on the September contract. Some analysts remain quite bullish, and recent data suggests that speculators had net short positions as of the last week, according to Commitments of Traders data. As such, oil was due for a bounce after its recent sell-off. However, this appears to be just another opportunity to sell this market. A rally up to $135, or even the highs over $145 would not be surprising, considering the mood of traders, but afterward, this market looks toppy. Stay tuned!

Crude Oil’s rally today killed off the Dollar’s attempt to move higher, and it remained relatively unchanged on the day. It is notable that the recently strong Aussie$ appears to have rolled over, as it made fresh 1 month lows today.

In other markets, Corn continued to bounce off of its recent low, but the trend in this market remains to the downside, and this bounce is providing an opportunity for shorts to increase their positions. In the metals markets, there was a bit of a divergence today, as Gold was sharply lower, while Silver and Copper, which have more industrial uses, bounced off of their lows, and closed higher for the session. This could be a further sign that traders are convinced the economy may be ready to turn.

Due to the strength in the industrial commodities, the industrial oriented and coal stocks showed a lot of strength today. Some of these stocks look set to test their recent all time highs after significant sell-offs. I still believe these stocks require more time to form bases before considering any intermediate and long term positions. These stocks are simply too volatile at this point.

In regard to our Ultimate Stock Trading System, we have a couple stocks we are monitoring for potential buy signals in the next week.

Good Trading!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Bear Market Growls as Stocks Tumble

The Bear Market re-asserted itself Monday as financial stocks, tech stocks and telecom stocks took a sizable beating. AAPL continues to drop after a decent earnings report last month, but conservative guidance. The stock looks like it may want to head down to the $115 level where it bottomed in February.

Stocks look set to re-test the July lows after a couple sizable down days in the last few trading sessions. Interestingly, Merrill Lynch, one of the big financials, made a new low today, which could be an ominous sign for the rest of the sector in the near term.

This will be a big week for the stock market as major economic data is due (2nd Quarter GDP and July Employment), and earnings season continues. Significantly weak data could provide the market with the opportunity to test the lows. Unless we can get a spike in the VIX up to the 35 level, not sure it will be a successful test. The market can go through its lows by a decent margin and still achieve a successful test if it gets a good bounce off of the new low. Stay tuned!

In the futures markets, Crude was up a little today, and the Dollar was slightly weaker. The sell-off in financials provided a nice boost to the Treasury markets, which were sharply higher today, reversing Friday’s sell-off. These markets are having a difficult time finding direction lately, and have been quite volatile, so be careful!

This week, Corn and Soybeans have set up nicely for short term swing trades to the downside. Cotton looks like a potential trend following trade to the downside on a break below 68 in the October contract.

Good Trading!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Weekly Stock Market Re-Cap

The Stock Market ended the week mixed, with 1% plus gains in the Nasdaq and Russell 2000 averages on Friday, but much more modest gains in the Dow Jones and S&P 500 indexes. The week was mixed with strong gains seen in the Russell 2000, but a 1% loss in the Dow. Profit taking was seen in the financial stocks, which had a huge bounce off of their lows of a couple weeks ago, as short sellers were caught with their hands reaching back into the cookie jar.

Overall, bear trends remain in place, but new leadership appears to be emerging within the small cap sector, as evidenced by the sizable move up in the Russell 2000 average over the last couple of weeks. Financial stocks continue to weigh down the S&P 500 and Dow Jones, as the real estate market continues to show weakness. For another couple of weeks, quarterly earnings reports should be the primary driver of stock prices.

In other markets, the Dollar enjoyed a positive week as Crude Oil continued its slide downward. Treasury futures gave back much of their gains from Thursday on Friday. Treasuries are locked into a rather wide trading range, reflecting a tug-of-war between inflationary expectations and economic weakness.

Good trading!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Weak Housing data causes Stock Market Sell-off

A weak housing report suggesting that the housing market is nowhere near recovery sent stocks tumbling on Thursday, effectively ending the recent rally. This was not a good day, with the major averages off anywhere from 1.5% to 2.5% and more. Today’s price action suggests that we must test the recent lows in order to have a chance at a more significant rally going forward. It will not be necessary for the markets to make new lows in order for a successful test to occur. However, that may be what is necessary to truly cleanse this market so that a bull market may begin anew.

One positive development is that in spite of the stock market declines today, the Dollar pushed a little higher closed above its 20 day moving average for the second day in a row. Most of the strength came against the British Pound, but the Dollar gained against most currencies, except for the Yen.

The weak housing data also sparked a nice rally in Treasuries today, and 10 year notes enjoyed their biggest one day gains in months. Commodity prices were generally flat today, except for Natural Gas, which continued to plunge as supplies continue to build. This market is now down over 30% from its closing high just three weeks ago.

Traders interested in putting a little risk capital at work should consider SQNM. This is the top stock on our list at the momentum. It is not meeting all of our trading criteria just yet, but it is a top performer and is offering a relatively low risk entry for more aggressive traders. GTLS also appears to be heading for our list for next week.

Good Trading!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stock market rally continues with modest advance

U.S. Stocks continued the recent rally with a small advance Wednesday, buoyed by another $4 drop in Crude Oil prices, but tempered by earnings reports. The advances were also tempered by weakness in energy related stocks, as well as agricultural related stocks, as commodity prices continued their recent declines. In a recent post, I mentioned that the last brief rally in these stocks was likely the last opportunity to lock in profits near their highs. That opportunity is now gone, as these stocks are now making new lows for this move to the downside. This is confirmation that new leadership will emerge to take the market higher when this bear market ends.

Good Trading!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Trading and Investing in a Bear Market

As I browse the typical investing discussion forums, I am continually amazed at how many people are interested in knowing whether now is a good time to buy some stocks that have absolutely been crushed by the ongoing bear market, while there have been some stocks that actually doubled in value or more in 2008 (JRCC, ANR, WLT, FDG are a few that come to mind).

Quite honestly, this is not a common occurrence in a bear market, as 3 out of 4 stocks will decline during such market conditions, and typically more than the Dow Jones Industrial Average or S&P 500 index themselves. However, it makes absolutely no sense to buy a stock that has declined day after day, when other stocks have held up reasonably well during the decline.

I actually read in one forum a question of whether it would be smart to consider investing in one particular stock that had declined from $35 to under $2 per share. Such an investment would be pure speculation! The stock declined 90% because its business was no longer viable! Stocks do not decline 90% if they are managed well and have a good business.

I recently posed this question to a friend in regard to investing... “when you are looking for a doctor while you are in need of surgery, do you go straight to the cheapest doctor, or the more expensive one with the good reputation?” Her answer was naturally the second choice. I then asked her “when looking for a stock to buy, are you more interested in the cheapest stock, or the more expensive stock that has been more profitable?”

You see, stocks are priced based on their ability to generate profits, and shareholder value. A stock that is in decline is declining for a reason. Now, it may just be that economic conditions do not allow that stock to perform very well, or it may just be that the stock is declining because the overall market is declining. However, if there has been a significant change in the company’s business, and the stock has declined significantly because of that, then it is not a good time to buy that stock. That is pure speculation. You have no idea when that company’s business will turnaround, and chances are, you are not Warren Buffett, with billions of dollars to invest, and the ability to influence the management of a company.

Therefore, it is essential that you focus your attention only on the strongest performing stocks. You can screen for stocks that have generated consistent profits and have outperformed the market averages. When the stock market turns around, it will be these leaders that will provide you with the best returns.

One other question that concerns me is that people want to trade or invest while the market is in decline and the economy is performing poorly. Well, this is actually a good time to invest in high quality stocks that you will hold for a long period of time, but most people are looking for substantial performance in a much shorter period of time. While the current bear market has yielded some strong performing issues in the energy sector (coal companies in particular this year, solar stocks in 2007), and agricultural sector, it is generally a wiser move to just sit tight while waiting for conditions to improve!

The most successful investors have had the patience to wait for the right opportunities when the market is ready to yield profits more easily. It makes no sense to try and buy a stock when it is in decline, as you simply have no idea how low it will go. Just look at MBIA, Countrywide Financial, Bear Stearns and Lehman Brothers! Some smart investors got burned by all of these stocks by buying them because they looked cheap after declining 30% to 50%, and then they fell much further!

Therefore, the smart thing to do in a bear market is sit tight, and monitor the market for the next great opportunities. Investors Business Daily is a great publication that allows you to monitor that best performing sectors and the emerging stock market leaders. I personally use the TC2000 software package by Worden Brothers to screen for the best performing stocks simply by identifying the stocks that have risen the most above their 52 week lows, and are closest to their 52 week highs. I then wait for these stocks to consolidate for a bit so that they offer a low risk entry price to enter a new position.

Now, when will you know whether it is safe to at least dip your toe in the water and consider buying a new stock? Well, last week we had a couple 200 plus point up day in the Dow Jones, and today we had a strong reversal to the upside after a weak open. This suggests that there is some new buying in the market, and this rally may have some legs. However, you must tread lightly until all of the major average surpass their May highs. If the markets are able to close well above these highs, and stay there for more than a few days, then it is very likely the bear market is over. Until then, sit tight and do your homework!

Once you have determined that it is safe to consider buying a new stock, figure out at what price you want to buy it, AND where you will sell it in case it starts to decline immediately and you have a loss! The easiest thing to do in trading and investing is figuring out what to buy, and maybe what price to buy. However, most people have no clue when to sell. A decent rule of thumb is to sell if the stock sells off over 7% below your purchase price. You must get out, and do not HOPE the stock will turn around. If it is a good stock, it will eventually, and you can re-enter. But, you must cut your losses when they occur.

If the stock then rises in price, learn how to lock in profits with trailing stops by monitoring the stock’s price action. Look for swing lows and support levels where the stock sold off to on a minor pullback, but then resumed its uptrend. These are excellent levels to exit positions if they are violated to the downside. Also, it is important to monitor unusual price and volume action in the stock. A sizable one day decline on large volume suggests distribution by large money managers, indicating they are no longer confident that the stock will continue to rise.

These are just a few tips for you to develop a trading/investing plan. The fact is, there are many ways to skin a cat, but you will always have the odds in your favor if you only focus on the top performing stocks.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com