Wednesday, June 01, 2005

Time to get busy again

There's a nice technical analysis writeup of the major stock indexes over at the CANSLIM investing blog. I don't have time to do a full write-up of my own analysis tonite, been too busy trying to figure out why yahoo finance's historical data is broken, but suffice it to say that I agree with the CANSLIM investing blogger's analysis.

I would like to put forward one further idea: now is the time to get busy hedging long, short, whatever you want. This is a great time to be putting on new trades because you get to find out whether you were right or not without risking much by watching the behavior of the major indexes and leading stocks at this key turning point. My activity picks up at times like this on both the long and the short side, and it works because I dump the losing trades and ride the winning trades for however far the market will take me.

There are plenty of low-risk "layup" trades setting up. Jarod and I define a layup trade as a trade that is so low risk its a no-brainer to take. They are usually based on a thesis, such as: "stock ABC is pulling back to within 1% of its 10-day moving average on light volume after a huge runup; it will either bouce at the 10-day MA or else the trade must be closed at a loss of no more than 3% because the stock will probably give a much better buy opportunity at a later time." If a likely outcome is a potential gain of 10-30% with a chance for a homerun, and you're only risking a 3% loss, its a no-brainer to take the trade.

Here's my watchlist for tomorrow (Wednsday, June 1):

Speculative long candidates:
ESMC
EXM
GOAM

Near new 52 week highs long candidates:
FLOW
BLUD
PYX
SMTS


Short ideas:

SBUX
RNVS
FDG

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