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|Wednesday, April 14, 2004|
The NASDAQ continues to fight to stay above its 50 day simple moving average. It was able to bounce off the 50 DMA and managed to close above it. My pre-market Alert was guidance to the day's actions was quite accurate. The daily stochastic indicator is almost at the oversold level and the ADX line is trending down. This could indicate that a bullish reversal is around the corner. The oversold/overbought indicators work well when the ADX line is trending down, and do not work well when the ADX line is trending up
Pullbacks to the MA (Moving Average)
Pulling back to the moving average is common after a nice move up, so this sell off to touch this MA was really no surprise at all. The last couple days have been distribution days with volume above average. It is going to take a couple more hard sell days to turn the accumulation/distribution indicator negative, and I do not think this is going to happen.
Effect of Interest Rates
Interest rate increase worries appear to be in the market, but history has shown that it takes 3 rapid increases of interest rates over a 3 to 6 month time frame to stall a major stock market rally. In that case, the Feds will have to act fast to stop the bull, and I do not think they will raise the interest rates that much.
Today's close below the 50 SMA on the Russell small cap index is an eye opener for sure and raises a red flag (see chart). The NASDAQ 50 SMA must hold if the stock market is going to advance; if it cannot hold this level then the corrective phase will continue.
We are currently 60% long and 40% cash after lightening up on some positions over the last couple of days. I did not sell more in hopes of a nice bounce off this 50 SMA on the NASDAQ. We needed to raise cash just in case we fell through this key support level.
Want to hear a rumor?
Any rumor that comes from an inside person would be considered as insider trading. However, the availability of those insider rumors is slim to none if they are at all factual.
There are few people that actually have access to the kind of information that would move a stock price.
Sure there are some but that number is very small when compared to the masses. Maybe the executive officers and a few of their inner circle friends and investment bankers, but they do not leak the information very often. Do you think those are the kind of people who you will find posting rumors on message boards?
If I had information that would potentially move a stock up by 50% or more I would not telling anyone. Why? Because I would want to keep the price low so that I could buy as many shares for myself as possible before the news hit the wire. I would wait for the news to come out, and I would sell my shares to the herd reacting to the news for the big score.
Why in the world would I want to share information like that with complete strangers on a free message board? Why would anyone pump a rumor on a message board if they knew it was true? Just wait for the press release, then make your profit. I am sure most people in the market think this way as well so knowing this logic, the rumors posted are likely false. How many times has a rumor been posted before hand that has actually happened? Probably very, very few.
People spreading rumors on these boards are only doing it to pump stocks so they can sell there shares to anyone that will listen to them. Why? Because it is free, it is anonymous, and a lot of investors get their information from message boards.
It is usually the cheaper stocks that have this kind of unfounded rumor mill going. The stocks are cheap, so it is easy to buy a bunch, and then make a huge profit after you have sold enough people on the rumor. You do not find nearly as much rumor talk in stocks that trade at $10 or more. It is too costly to take a position, and there is usually enough information known about the company that manipulation is not nearly as easy to do.
The chart says it all. It will show the momentum building in a stock.
So if you want to listen to a rumor, listen to the one that the chart is trying to sell you on. Chances are you will be getting much more accurate information than any of the posts on those other message boards.
OTC BB watch list
As always, thank-you for your support past, present and future! Have a great night everyone; we will see you all tomorrow evening.