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Trends and Strategy

The stock markets in the United States are in a bear market and the economy is most likely in a recession. Bear markets are characterized by sharp moves down followed by quick rebounds to resistance levels, sometimes called dips and rips, but more about that later.

The market is testing its recent lows. If this holds then look for a rebound up to resistance at the 1375 level and then the 200 exponential moving average. If this rebound takes place then it will be a good place to enter into shorts such as SDS, QID and SH.

Over the last month we have seen narrow trading with volatile moves up and then down. Eventually, we will get a break in one direction or the other that will give us an opportunity to enter additional positions, either short or long.

For now it is best to stay nimble and look for good buying opportunities during market pull backs as a bear market is one of the most difficult times to invest and trade. In addition use down side protection on any long positions using covered calls, protective puts and stop losses levels.

Stock Hot List (Stock Portfolio)

I will be looking to buy shares of good companies with excellent prospects on dips in the price.

Since the Materials sector is likely to perform well, I am considering Companhia Vale do Rio doce (RIO). RIO  is a significant player in iron ore and fertilizer. In addition they are benefiting from the strong growth in Brazil. TIE is a longer term investment as they are currently being hampered by the production problems at Boeing for the 787 and Airbus for the A-380. The award of the new tanker for the U.S. Air Force will eventually add to the company sales once production begins.

Should the market make a move up to key resistance levels,  it will be a good place to go short using the Proshares Ultra Short S&P 500 Exchange Traded Fund (SDS), the Proshares Ultra Short QQQ ETF (QID) and the Proshares Short S&P 500 (SH).

Symbol Entry Area Stop Loss First Target Holding Period Reward/Risk Ratio
RIO Break at 38 or support at 200 moving average or up trend line. 15% 48 Review before earnings announcement 3.0
QID 50 day moving average, or 48 50 area 11% 60 Till market reverses trend 2.5
SDS 50 day moving average, or the 61 - 63 area. 11% 72.5 Till market reverses trend 2.5
SH 50 day moving average or break of resistance at the 67 area. 11% 74 Till market reverses trend 2.5

The Stock Watch List has more stocks that might hold promise in the future.

Sector Hot List (Sector Portfolio)

For 2008 the table below highlights the sectors that should beat the S&P 500:

Beat the Market Track the Market Lag the Market
Energy Consumer Staples Healthcare
Financials   Utilities
Industrials   Consumer Discretionary (1st half of 2008)

For now I am interested in the Energy and Materials sectors as they continue to benefit from global growth, higher inflation and a weak dollar. The Energy Select Sector SPDR (XLE), where we already have an initial position and the Materials Select Sector SPDR (XLB) offer potential returns.

On the short side the Proshares Short S&P 500 Exchange Traded Fund (SH) should help hedge the portfolio against moves down. I will be looking to acquire a position on any move up in the market to key resistance levels before taking a position.

Symbol Entry Area Stop Loss First Target Holding Period Reward/Risk Ratio
XLE Buy at support of the lower rising channel on the 3 year chart (65 - 66 area). 13% 80  Hold till trend reverses 3.0
XLB 39, support of lower channel on 3 year chart 11% 43.5
Hold till trend reverses
SH 50 day moving average or break of resistance at the 67 area. 11% 74 Till market reverses trend 2.5

The Sector Watch List has more sector ETFs.

Premium Resources

Page Description
Stock Portfolio For aggressive investors interested in beating the market through investment in the stocks of good companies. Stock selection is based on valuation and potential for growth, using support and resistance levels to identify buy and sell points. Also, takes advantage of covered call options and protective puts to enhance the return and reduce risk.
Sector Portfolio For more conservative investors, still interested in beating the market, but looking to hold positions for a longer time frame. This portfolio invests in Exchange Traded Funds that are expected to beat the S&P 500.
Stock Watch Provides a list of stocks that have good value and posses reasonable growth. From this list I pick the ones that then meet the preferred buy points. A thorough analysis of each stock is provided for your review.
Sector Watch Reviews each S&P 500 sector and includes an evaluation of the Exchange Traded Fund (ETF) that fits the individual sector. I also include other ETFs that have the potential to perform well over the next year.
Market Commentary A comprehensive weekly review of the economy, interest rates as well as the market trends from a technical perspective.