It's going to be a tough day for the bulls tomorrow.  Stocks will open down in most sectors tomorrow morning.  The top news is that although AAPL, Apple Computer announced their earnings increased 31% but their cautious forecast is what investors were focusing on.  The stock was down about 20 points after the regular market hours closed.  This is also going to bring down other NASDAQ stocks like GOOG and BIDU which are high priced stocks.

The cautious mood and negative sentiment that prevails over the market now is going to punish any stock that doesn't issue much better than expected earnings in this earnings season that is in full throttle this week.

The financials have started correcting, as expected.  JPM started correcting first a few days ago on Friday followed by a second down day.  That was because it went up the most and it is usually a good clue when you see a leading stock in a sector change directions that the others might follow.  So your attention should be on the others and how they are acting.  We should see the others start heading down tomorrow with substantial corrections coming this week.

BAC, WFC, WB, C and JPM are the best stocks for a short position in the financial sector.  This position may last from a few days to a couple of weeks.  They are going to open down in the morning, which we call a gap down.  That means the opening price the next morning is lower than the close.

The volatility will return in the financials with potentially some scary down days again.  It is the same 10 year old girl syndrome that the market often acts like emotionally which means, the market tends to over-react.  When you understand the psychology of investors and the market sentiment, you can really make a lot of money by anticipating that and positioning yourself to profit.  But you still have to trade what you see, not what you expect.  You just look for signs to confirm (or not) your forecasts are correct or not and react accordingly.

The logic and language that I often have goes something like "usually in this situation, the stock should act like ........."  This is with the understanding that I am always looking for new information or conditions that will influence the current course of a stock.

If the financials tank again (term that means go down hard), guess what......we can make money again.  We made money on the long side, now on the short side, and if they go down similar to what we saw before, we are going to have a tradable move up again.

When you follow a stock in 2 directions, the account balances tend to go up quickly.

We won't see 64% moves again on BAC like we saw this last week but I suspect we will see some good signals.

I sort of have to apologize for making you into a trader but that is what is working now.  I don't see positions with 2-6 month holding times working at the moment but the 3-10 day positions are working really well.  So you go with what works.  The buy and hold crowd is getting killed this year.  I can't fault Warren Buffet for his strategy because it is working for him but he is on his own level.

The oil stocks started to move upward slightly with COP moving the most of the three I liked.  If oil prices move up, that will accentuate the drop in the stock market.  The pattern lately has been that stocks go up when oil prices go down and I don't expect anything different for a while. CVX and BP should follow COP - you can watch the XOI (AMEX oil index usually quoted as $XOI) as well.

The housing stocks didn't move much today but was more of a positioning day to establish positions for the coming week.   As I mentioned to another subscriber today that you harvest your profits in cycles, meaning, you don't make money everyday, you open positions, monitor if they are doing what you expect and then close the positions when they have matured or reached their target prices.  This description is for swing or intermediate term trades, not for intra-day trades.

That is the one advantage of intraday trades is that you create profits each day on most trades, which we can call cash flow.

Back to housing stocks, DHI, CTX, KBH and one I have not mentioned yet, TOL, Toll Brothers, are decent swing trades on the short side.  TOL works with higher end homes and some of the banking executives said this week that there is "a dark cloud on the horizon for prime mortgages."  Oh sheesh, just what we need, a melt-down in prime mortgages.  I figured the disease would spread to them eventually.  This housing sector stocks should be slow gradual declines unlike the fast moving financials.

VMC acted the way I expected, turned over and I am more firm about mid 50's and probably lower.  This position may last longer than a week.  This sector is acting very negative, with new forecasts that the housing prices may drop for another 2 years.  Secretary Treasurer Henry Paulson stated his opinion that it is a matter of "months"  before we hit bottom on housing prices.  Since when does a Treasury Secretary forecast housing prices, hmmm.

ICE was stopped at $88.50 with a net profit of 6.5%.  I think I mishandled that because I had too strong of an expectation the stock would have a stronger move.   The stock hit $95.50 over a 2 day period last week.  You see, I told you having expectations can be bad for you, lol, not just in stocks either!

The commodity stocks that I follow, ag-chemical stocks MOS, MON, AGU, and POT had a big up day today but I don't think this group of stocks is tradable now that they had such a big move today. My hunch is this sector is going to have lower lows and lower highs which describes a gradual downtrend.  I think the air is going to be let out of this sector but they still can see sharp rebounds upward within a downtrend.

I am not too interested in the coal stocks (ACI, FCL) even though they have been down a lot.  They corrected much deeper than the energy (oil) stocks so they may not come back up as much and they look tentative now.  That could be a clue that oil and gas stocks could be turning over but they look much stronger than coal.

I will be updating the Mutual Fund Model Portfolio late next week and it is off to a fast start at the race horses.  The model portfolio is doing very well.

Biotech and some health stocks should still be attracting money in this environment.  Watch out for that trend.


If you like this newsletter, go to my website and join the mailing list.  We send these out every afternoon.
TradeStocksAmerica