First of all, I wanted to apologize that some of you who just joined this weekend have an issue with the username and password not allowing access to the Members Area the last two days. We are aware of this situation and it should be resolved tomorrow. In the meantime, you will still receive emails from us that have links for a video and a text report for The Daily Stock Report. The stock market is tired but still hasn't had the extreme sell-off that describes the ideal scenario we have been looking for last week. We were looking for that capitulation point that last occurred on November 21, 2008 in all of the indices (the Dow30, S&P 500, Nasdaq Composite, etc) which is where an accelerated decline in stock prices, increasing trading volume each day and often an emotional state that is best described as "near panic conditions," immediately followed by an intense powerful rally. But that has not happened yet. If that would have happened this type of action sets up for powerful rallies upward that can last for a few days to a few weeks. If a rally really takes hold, it can last for periods of weeks but that hasn't been the pattern for some time. The Dow30 was down 100 points on Friday with higher than normal trading volume. It was down 1.34% at the end of the day while the NASDAQ Composite was basically break even. Since the Dow30 holds financial stocks that have been taking a beating this week, the Dow has broken below the November 21, 2008 low. Let's review the main issue that has been driving the stock market last week and will be front and center the next few days. As we have been talking about for days, the banking stocks have been dropping sharply and there is an opportunity to buy these stocks for a likely powerful rebound (USB, WFC, BAC, C, JPM, and IYF) that may only last for a few days but could give percentage profits as much as 30-50% from the bottom that appears to have already started on Friday. See Video attached to this email on WFC, BAC, C, USB intraday charts. What is most likely to happen with these banks is it opens up tomorrow morning (Monday, 2-23-2009), with the financial headlines that started on Friday after the market….. "White House Does NOT Encourage Bank Nationalization" and tonight's headline reads something like "Feds may expand Citi stake." Bank of America's CEO, Ken Lewis states all this weekend that BAC doesn't need to be nationalized. So there is a mix of news that may push and pull on these banking stocks but the most likely result will be that these banks will head up some more at least the next two days. But don't use this statement as reason to buy blindly tomorrow because it could be very volatile. Most of the profit has been missed if you didn't buy Friday with maybe another day and a half of upside before we likely see more selling again. This is a time for banks to fasten your 5 point harness and hang on for the ride. A Democratic senator, Christopher Dodd was quoted this Friday and this weekend as saying he may recommend bank nationalization, which would effectively wipe out the common stock holders. Remember FNM, Fannie Mae and FRE, Freddie Mac; these two stocks dropped to 16 cents and 37 cents after that announcement so it is logical people sell first, then ask questions later, especially in this market. That explains the drop in BAC, Bank of America going from Thursday's close of about $4 to $2.53 or a 37% intraday drop and the banks rebounded sharply after the White house denied plan of bank nationalization at about 1:45pm Eastern time. (BAC had a high of $7.07 less than 2 weeks ago!) BAC rebounded back up to over $4 from $2.53 the following 90 minutes or 58%, WFC rebounded from $9 to $11.40 in 65 minutes or 26%, USB only 11.4%, JPM moved up 10.6%, and C, Citibank, moved up from $1.61 to $2.31 or over 43% in that following hour. BAC and C are the two banks that nationalization have been rumored to be discussed. Why all this discussion about banks, the news, and the timing? Because this type of news affects these stocks radically and we already have long positions in them. These banks are where the high profit, high probability trades are at this moment-- but study the daily charts and intraday charts (also in video) and learn from this for the next opportunity because it is likely you have missed most of the profit at this point. Note the S&P Futures are up substantially tonight with the Dow30 indicating a positive opening over +120 points. Hong Kong is up over 3.75% as well and Europe is up about 1.8to 1.9%. This should be quite positive for the banking stocks as well as the US market. No doubt the Fed's statement of expanding stake in Citi as well as denial by the White house on bank nationalization is helping the markets move up. At this point, the Senate and House is still influenced by the new President as the Democrats have full control in all three. If Bush had made the same statements in the same situation that the White House has on rejecting the bank nationalization talk, the market wouldn't have listened because there wasn't unity between the Bush Administration, Senate and the House. Moving on, look at the T2108 daily chart on the Worden Brothers daily Chart called the Telechart. This shows the percentage of stocks above the 40 day moving average which is currently 13.12%. This indicator along with several other are showing a probably move up in stocks but this isn't accurate on the exact timing of that move. Keep watching the VIX-X, CBOE Market Volatility Index. Short term pops in this index can often predict probabilities on selling. Oil prices moved up Friday another 2.2% in addition to the 12% on Thursday. The move up in oil is affecting the commodity based stocks such as ag-chemical stocks like MON, MOS, AGU and POT in addition to the oil stocks themselves. USO is still acting like a lazy dog by barely moving up today after oil moved up 2.2. Consider some of the independent ones like XTO, APA, APC, EOG, COG, HAL, RIG and many others during this bottoming process in oil prices. Intermediate Trade Positions: New ideas Speculative: GSS, Golden Star Resources. Consider going long a very small position. Gold should open down tomorrow. This is a low priced gold mining stock. Set stop at $1.50. RIMM, Research in Motion dropped on a lowered earnings forecast by the company. This stock dropped from $60 to $38 in 2 weeks. Worth small long position; buy gradually. Swing Trades: New Ideas: BRKB, Berkshire Hathaway Class B shares are lower cost to buy at $2,387 per share. Worth a share or two long. Day Traders/Intraday stock ideas: REPEAT: Intraday trading continues to be the most reliable and profitable trading technique in this market. Stocks will likely gap up and have shallow of any drop. Continue to watch ICE, BLK, CME, POT, MON, MOS, AMZN, AAPL, FSLR, BIDU, USB, WFC, JPM and any high volume, high volatility stocks. NOTES: The stock market seems very likely to correct to previous or new lows after any countertrend rally upward. The rally may last only days before pulling back. Don't build a high percentage of long positions-keep a lot of cash on the sidelines, build small positions. REPEAT: Even if the market does what we are forecasting and that is a move upward lasting only a few days, don't get lulled into thinking the market is turning into a bull market. It is very likely it is what we call a countertrend rally within a bear market. Meaning, the market is still in a bear market and has a downward trend but powerful rallies can be seen within that downward trend. This is what we are trying to profit from right now with the banking stocks and other sectors. But prepare to sell soon and stand aside or look for short sales if market turns over after just a few days up on especially the banking stocks. I am still expecting some sort of substantial rally in the stock market sometime this year mostly driven by the massive stimulus that has already been poured into the system plus the planned stimulus package being proposed now. Longer term though, in a couple years down the road, no doubt the taxpayer is going to have to pay for such the high debt amounts that the US government (and other countries) have taken on. So tax rates probably will rise in coming years, interest rates will very likely have to rise as inflation surfaces and likely the bear market resumes sometime down the road. But we don't have to be stuck in a miserable cycle like most investors. With the techniques and approach to the market, we will still thrive. If you have been uncomfortable shorting stocks, which most people are, learn to get used to it, this will be a useful tool in the coming years. When I list several stocks from the same sector, like the housing industry for example, don't short all of them unless you are well diversified and it represents a small percentage of your total stock account (in that same account).Thoughts: Best odds only, be decisive, aggressive, mentalllonger to buy and wait a little longer to sell. You will find thatsee, not what you hope for. Intermediate trades are reallyDon't trade unless the setup is there for you, then use the chforce anything to work for you, let the setups develop and thewithout letting any intraday trade represent no more than 10your position size percentage should get smaller and smalleHave a great day and I'll talk to you tomorrow. Mitch King www.TradeStocksAmerica.com
By: Mitch King
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