Stock Speculation in An Uncertain Market Environment

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Welcome new Research Lab members. As you know, while we speculate in stocks on a daily basis, we must consider the overall long-term perspective.

In this monthly chart of the SPY you see a shaded box that indicates the range we expect the market to trade in the near-term.

We will be watching to see how the market reacts to the upward sloping 10-wk moving average as well as the 30-week MA overhead resistance. The lower end of the range represents a significant pullback from current levels so we should be prepared for anything at this juncture.

The market is likely to trade sandwiched between these two moving averages for some time, at which point it will show us the true state of affairs.

The yellow box extends 8 months into the future and is likely to contain most of the price action.

We would be at a sell signal if the white 10-week moving average is broken to the downside at any point in time.

An initial buy signal would occur if the price breaks above the yellow 30-week moving average, but final confirmation would be IF the 10-week crossed above the 30-week, with the price above both.

It’s hard to imagine we are headed to repeat the pattern from the last yellow trading zone, but stranger things have happened. Only if the economy truly recovers would we expect to see a push above the 30-week.

It is perhaps more likely that we will see pressure that drives it down to test the rising 10-week. That will be a most critical juncture as all bets are off if that fails to hold.

We are as cautious as ever right now and consider holding stocks overnight risky. However in many cases, to maximize return on subsequent price momentum, we are required to hold the occasional stock overnight perhaps several days. Recent examples are NLST SEED HEAT CGA APWR.

We still ALWAYS suggest using a stop-loss order on every trade and every open position. Sell losing positions quickly and take small profits frequently. When you latch on to the occasional trade that makes an explosive move up, consider taking partial profits the same day and letting the remainder ride with a trailing stop to maximize the participation.

We will continue to speculate when the tape is with us and will not be afraid to have the trading account in ALL CASH frequently as we go forward.

We will NOT allow a major drawdown of capital if the market begins an intermediate down cycle. Taking smaller positions in high-risk high-reward trades will be the plan for now, with one eye on the exits.

Whatever is least expected by the conventional wisdom in 2010 is most likely to transpire. While we never rule out a catastrophic black-swan melt-down, we can trade each day as we see fit, confident in the fact that the Research Lab stock picks will present untold opportunity for profit with short-term speculation. Every day, right at the open, in real-time – our scans isolate stocks that simply stand out from the rest and the price momentum says is it all. Every day is a new day with new picks, though the market leaders are evident to all users as the familiar names frequent the lists day after day.

That’s what makes it so fun. That’s what makes every trading session exciting.