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A great rally is over

Today, it happened in the markets what I though would happen when I saw on CNBC yesterday how excited these guys were about the yesterday’s rally. First what crossed my mind was, yea, wait for tomorrow. The Wall Street is too sensitive about the news and stocks respond in zig-zag move. Not to say I am an expert, but I could see some slowing in trend since April 5th. It also makes me angry seeing all those people over there (in Wall Street) reacting this way. Exactly as Mr. Miller depicts in his book’s (The Single Best Investment) cartoon: “Everything that was good for the market yesterday is no good for it today.”

Most likely we are heading into correction. Markets lost too much to consider it “rally” and they have been slowing (“under pressure”) for a while.

Dow 10,927 -225 -2.02%
Nasdaq 2,424 -74 -2.98%
S&P 500 1,174 -29 -2.38%

Sector Watch
Strong: health care tech; hypercenters and supercenters
Weak: construction materials; building products; coal and consumable fuels; agricultural products; diversified metals; electronic communication and equipment; semiconductor equipment; health care facilities
Source: Morningstar.com

The market is now testing its support on 50 DMA (S&P 500), lets see if it bounces back or breaks through. Since I do not short stocks (at this time) I am postponing any new purchases for this period waiting aside for the next movement.

There is another thing I have to share. I must admit that trading stocks with such a small amount of money is nearly impossible. Originally I wanted to prove it is possible, but I must step back, and admit that capitalization is really important. For that case I am adjusting my trading strategy and I am limiting my trades to $1500 a trade or more. I will also start saving more money for the trading account taking the same approach I do with my ROTH IRA account. Since my IRA account has priority now (see my previous post) saving funds for my trading account will take some time. I also need to think about the strategy a bit, how to manage my existing resources.

My idea right now is to create a base of the portfolio made of NTF (No transaction fee) funds and trade with the margin money – that means I will invest funds into NTFs ($2000) and use c. $3000 margin money for trading (up to buying power). But first I need to look at it a bit closer before applying this approach.

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