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March 24, 2009 Tuesday Evening

The stock market indices pulled back slightly today with the Dow30 declining 1.5%, NASDAQ Composite down 2.5% and the S&P 500 down 2.%. The market is trying to digest the news released yesterday on the banking bailout plan. Stocks held up well in the first few hours and near the close stocks sold off with the banks, insurance and financial stocks leading the decline. Perhaps the market will be asking the morning after question, trying to come to grips with the real state of the economy and to what extent any of these measures will help.

President Obama and his administration are not comforting the markets by the class warfare and the bitter tone of their words in Washington. Their actions are unsettling to the market and the world during a time when people need calm and reassurance. We saw this pattern in 1993 when the Clinton’s took office and the markets gyrated every time they said something. Interestingly, it was the same subjects of health care reform, corporate greed and tax rates that dominate today’s headlines as well. But the Clinton’s were soon advised how their words affected world markets but it isn’t clear if Obama will listen.

The Obama administration has been on a strategy that is similar to when he was campaigning for President as if to continue to prove to the public that he knows that he and his cabinet knows what they are doing. The CBS 60 minutes appearance last week by the President, the CBS 60 minutes appearance by Federal Reserve Chairman Bernanke the Sunday before, the blocking off of the highest viewed time slot (American Idol) on Tuesday’s evenings on Fox and appearing on The Tonight Show with Jay Leno to deliver what is being viewed as inconsistent, erratic and slightly desperate messages. We haven’t seen an acting President or Federal Reserve Chairman appear on 60 minutes for decades and it looks like he is panicking a little bit and the market senses that.

There is increasing pressure for the replacement of the Treasury Secretary as Geithner complicates the Obama administration’s growing negative public image even more as he defends himself like an alley cat cornered at night during the recent Senate and Congressional hearings. This kind of behavior and personality of continually being overly defensive and argumentative by critical leadership positions and is making the world nervous.

My purpose of pointing this out is because it appears that the financial markets are reacting negatively when he is defends his decisions and blames others for our current problems—and being so early in his term is getting the public a little rattled wondering if he is the right man. It is similar to a battle in wartime when soldiers look to an officer for confidence in the heat of the battle. It doesn’t instill confidence among the men when the officer in charge is blaming others, doesn’t have a credible battle plan and looks scared.

This affects our decisions about stock strategies if the market continues to be scared or changes sentiment and shifts towards optimism. And these sharp correction cycles we have been having are partially a reflection the lack of confidence by the investing public with the current administration. Eventually the sun will shine and people will buy again, we just need to be in pulse with that sentiment of the investors.

It would not be surprising to see the banks and insurance companies that some of us are currently short, move down sharply in the next 2-3 weeks toward the lows made in early March, caused by this growing lack of confidence in Washington’s tone and lack of cohesive strategy. The market appears to losing a little bit of confidence in current leadership. But it is always a transition before a new and young President learns how to lead.

The ideal market action would be to see stocks move down the next few weeks about half way or one third the way down to the early March lows (good time to cover short positions) and then make a decisive action to the upside to higher highs than what we made the last two days. Having several months of an uptrending stock market would bring about a more ideal investor sentiment and easier trading environment for the beginning and intermediate investor. A less volatile environment would bring into play more intermediate term trades that last for weeks instead of days although the high volatility is much more profitable for advanced traders.

The banking stocks USB, WFC, BAC, JPM and KEY look like they topped today, earlier than expected but it’s not surprising we are seeing the same pattern that has been going on since mid September 2008. It is going to be a process of breaking down over the next 2 or 3 weeks and anyone shorting yesterday or early today will likely see substantial profits.

The life insurance stocks, PRU, MET and HIG also followed the same pattern and have been linked to the same trading action as the banks.

REPEAT: Many of you have emailed me with questions about not having the $25,000 to do intraday trading. You can have 3 intraday trades in a 5 business day rolling period. You can have swing trades like we have been having the last 2 weeks and make a smaller amount of money, let’s say $10,000, to build up with swing trades.

Thoughts: Keep steady, calm, decisive, aggressive. Have no fear and no greed. Keep looking at what to be doing next in a calm manner. Don’t focus on the past or beat yourself up what you did or didn’t do or what you should have done. Just keep playing the next shot, which in this business your next shot could be just sitting on the sideline.

Oil hardly moved and went down less than 1% and settled at 53.38 per barrel for light sweet crude. A mild correction is likely or what technicians call consolidation before higher highs could be made.

Intermediate Trade Positions: New ideas: Let market pull back before looking for more LONG positions.

Swing Trades: New Ideas: Let market pull back before looking for LONG positions.

Day Traders/Intraday stock ideas: Look for shallow drops followed by pops if the market continues to move up. If the market is correcting, then wait for a bigger drop followed by a bigger pop. As stocks move down, you should wait longer and longer before buying the bottom for a long scalp. FSLR, ICE, BLK, CME, POT, MON, MOS, AMZN, AAPL, BIDU, USB, WFC, JPM and any high volume, high volatility stocks. Look for short scalp set-ups in ICE tomorrow.

Thoughts: Best odds only, be decisive, aggressive, mentally flexible, stay in position size, don’t overtrade and wait a little longer to buy and wait a little longer to sell. You will find that will make you more money on your trades. Trade what you see, not what you hope for. Intermediate and swing trades are really important to have trailing stop losses set.

Don’t trade unless the setup is there for you, then use the charts to tell you when the odds are heavily in your favor. Don’t force anything to work for you, let the setups develop and then take advantage of that. Be patient. Stay in position sizes without letting any intraday trade represent no more than 10-15% of your total account value. As you build your account, your position size percentage should get smaller and smaller to lower your risk.

Have a great day and I’ll talk to you tomorrow.

Mitch King

For more tips and information about Day Trading Course, check out How to Buy Stocks.

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REPEAT: Many of you have emailed me with questions about not having the $25,000 to do intraday trading. You can have 3 intraday trades in a 5 business day rolling period. You can have swing trades like we have been having the last 2 weeks and make a smaller amount of money, let’s say $10,000, to build up with swing trades.

Thoughts: Keep steady, calm, decisive, aggressive. Have no fear and no greed. Keep looking at what to be doing next in a calm manner. Don’t focus on the past or beat yourself up what you did or didn’t do or what you should have done. Just keep playing the next shot, which in this business your next shot could be just sitting on the sideline

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, try to learn this technique, it 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).

SWI (SWING): 2-7 days            INT: Intermediate term position 8 days to several months.  Open Price:  price paid on opening long position or price sold on short position.  Bold notes on table above represent changes from previous day.

Current positions are highlighted in yellow.  Green colored lines are next probable positions to consider.  Red, take action or watch closely.

IMPORTANT:  The notes in this stock list is how I have been writing notes to myself about stocks for 16 years.   They are general guidelines as to how I am approaching a particular stock and conditions may change during the next trading day that may cause a change in opinion before the next evening report is written.

Thoughts:  Best odds only, be decisive, aggressive, mentally flexible, stay in position size, don’t overtrade and wait a little longer to buy and wait a little longer to sell.  You will find that will make you more money on your trades.  Trade what you see, not what you hope for.  Intermediate and swing trades are really important to have trailing stop losses set.

Don’t trade unless the setup is there for you, then use the charts to tell you when the odds are heavily in your favor. Don’t force anything to work for you, let the setups develop and then take advantage of that. Be patient. Stay in position sizes without letting any intraday trade represent no more than 10-15% of your total account value. As you build your account, your position size percentage should get smaller and smaller to lower your risk.

Have a great day and I’ll talk to you about this.

Mitch King