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To
OTC Journal Members:
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Bull Or Bear?
If You're A Bull- Buy the QQQs Now |
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My inbox is filled with dire predictions
of a head fake in the markets. Most of the technicians I follow are markedly
bearish right now. They argue the recent rally is simply another relief
rally in the ongoing bear market. But is it?
Despite the pullback this week, all
four major indexes are still camped firmly above their 200 day moving averages
(Dow, S&P 500, Comp, Russel 2000). The 200 day moving average is considered
by many to be the benchmark for determining the long term trend.
One week ago the NASDAQ traded to
a new high since making the October low, completing the pattern of making
higher lows and higher highs.
S&P 500 company quarterly earnings
are in for the March quarter. The last stats I read had earnings up about
25% on revenue increases in the 8% range. Detractors explain away the earnings
as being due to cost cutting, which has fully run its course. They attribute
revenue increases to the falling dollar, which means overseas buyers have
to pay more dollars for the same products.
True, growth remains tepid at best.
The consumer, cashed up from refi's on the home front, is supporting the
economy.
However, Wall Street is looking six
months down the road, and seems to be buying into the notion that economic
stimulus will work if given the chance, which should translate into real
top line growth and increased industrial production.
As Alan Greenspan pointed out in
his testimony on Capitol Hill today, the economic has withstood several
severe blows over the past three years- the bursting of the tech bubble,
911, Enronitis, and the Iraq War. Despite these seemingly deadly body blows,
we are still on our feet, remarkably resilient, and the strongest economy
in the world. So why shouldn't we be optimistic?
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The
Simple Trend Line |
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On could argue the recent run up
in the NASDAQ began in Mid March during earnings pre warning season, and
continued to it's peak last Friday. Monday brought a fairly vicious sell
off, sparked by Snow's comments on the dollar over this past weekend. It
was is if the market was looking for an opportunity to test its mettle.
If you believe the recent earnings
related uptrend remains intact, now is the time to roll the dice on the
QQQ's, which is a basket of stocks which reflects the NASDAQ 100. As you
can see from the chart, the QQQ tried to break its trend line today, and
held. Since Monday's sell off, the market has tried to work lower each
day, and failed. Therefore, we will probably see a rebound, opening the
door to a high probablility trade.
There are several ways to trade the
QQQ's. You can simply buy the stock, which trades on the AMEX. Or you can
buy call options, which is my choice on a trade of this nature. I look
at this as a gamble. When I gamble, I want the most bang for my buck.
Unless the market is down big at
the open tomorrow, I will probably buy the July 27 calls, symbol: QAVGAA
for my own account. They were offered at $1.75 at today's close. 10 calls
would run you $1750 plus commission
Alternatively, you could buy the
options with lower strike prices for more money, or options with higher
strike prices for less money. The higher the strike price, the riskier
the options.
I believe the NASDAQ could be ready
to test the 1600 level in the next leg up. If so, the QQQ would probably
trade to around $30, or just shy of there. In the options, this could translate
to a sell at about $3.50, depending on how quickly it happens.
Here's your basics for today's idea:
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Buy the QQQ's at the open tomorrow if
they are above $27.25 (below this level would signal a trend reversal).
The options are preferable for those who wish to gamble with greater leverage.
The July 27 calls are my favorite at $1.75.
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Price target- we'll reevaluate the picture
if and when the NASDAQ challenges 1600, where we will probably take our
profits.
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Stop Loss (the most important part)-
$27.25- if the QQQ's trade to $27.25 this will signal the trend has been
broken to the downside. It will then be time to take your loss and move
on.
Lots of comments on
this past weekend's article on illegal naked short selling. We will publish
some in the weekend edition.
Charts Provided Courtesy
Of TradePortal.com |
