Stocktwits 50, March 5

Posted by Ivanhoff
on March 5th, 2011

We can loan you enough money to get you completely out of debt.
- The secret motto of the FED

The U.S. Dollar Index finished the week at an all-time closing low ($UUP measured since February 2007), while crude oil, gold and silver are hovering around multi-year highs. In the movie Eurotrip, four U.S. tourists joke that they can buy a hotel in Central Europe for 5 cents. Nowadays the market value of the metal in the nickel is higher than its nominal value.

Despite the elevated intra-week volatility, the S &P 500 and the Nasdaq Composite barely moved, appreciating by 0.10% and 0.13% respectively. In the face of two stocks dropping by more than 10% this week ($BSQR and $NCT), the equal weighted St50 index managed to gain 1.82%. It is essential to cut any losses quickly in order to keep your account from churning. As a rule of thumb, in the worst case scenario sell your stocks if they close below their 50-day MAs or go 3% below them intra-day. You can always establish your position again when your stocks build more favorable risk/reward setups.

The best performing St50 stocks for the week were from the healthcare ($ITMN, $JAZZ, $SKH), tech ($EXFO, $WWWW, $BRKS), energy related industry groups. ($LUFK, $MRO). All major indexes continue to move above their rising 50-day MAs, but it would be foolish not to point out the growing number of high-volume distribution days in each of them. The beauty of down days is that they give a chance for the true market leaders to shine. Many pointed out during the week that the current market is a chop-fest and majority of retail investors might be better off by staying on the sidelines. Nevertheless, the market is an opportunity machine and it offers amazing setups on a daily basis if you manage risk properly.

The financial world continues to watch carefully the situation in the Middle East and North Africa. Too much is at stake. When front month crude futures climbed from $70 in September of 2010 to $90 in December of the same year, the move was considered an indication of improving growth expectations. When they broke above $90 two weeks ago, the game changed. Too much of the world economy input is determined by the price of oil and the market did not wait to discount any potential danger of closing the gap between supply capacity and normal daily demand. Oil prices are key for the next move in equities. It is the only disease, the FED doesn’t have a short-term cure for. They can’t print more oil. Otherwise, liquidity tends to trump fundamentals and define expectations.

During the week, I wrote a post addressing the differences between swing and position setups. One of my readers pointed out that many of the st50 stocks had a humongous 3-month return to be considered as good risk/reward position setups. I agree and this is what I responded: the St50 is a reflection of the market we are in. We had a strong run in the past 7 months, so naturally the return of many of the featured stocks is significant. The current market is a swing traders’ market aka “hit and run”. Many stocks are overextended for initiating new position setups.

The ST50 is a powerful equity selection tool. Equity selection is a necessary, but insufficient condition for consistent market success. Disciplined risk management is needed for the latter. Patiently wait for the highest probability setups in the strongest stocks to develop before you commit any capital.

I will share my favorite st50 swing setups for next week on Sunday.

See the daily charts of the St50 stocks on finviz; also weekly charts.

You can easily follow any or all of the stocks in the ST50 on StockTwits by clicking here. You can download the new additions and deletions from this week’s St50 from text files under the table.

Ivan Hoff

st50march5 st50 March 5 newadditions deletions

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.