the years I have developed 11 "Rules for Trading."
I am currently in the process of writing a series of articles
for Stock Upticks covering these 11 Rules for Trading. From
time to time as I have felt there were relevant reasons to do
with the current market activity I have discussed a couple of
them in the Sterling Weekly. Now is a very good time to discuss
the Second Rule for Trading, "Always
set a Stop Loss when Buying a Stock or Option, know your maximum
A "Stop" order is a limit order that
is triggered upon a specific price being reached. An example
of this would be a "Sell Stop" at $40/share on the
shares of ABC Corp. when the price of the stock was $45/share.
The sell order would not be triggered until the price of ABC
shares reached $40/share, then it would become a market sell
Every investor or trader should consider the
possible scenarios regarding the exit of an investment or trade
before it is ever made. This includes the price or the situation
where an investment is considered successful or a failure. Experience
in the market has long proven that there is considerable more
time to exit a winning position than there is a loosing one,
so it is far more critical to determine when to cut your losses
and move on than it is to take profits. Determining at what
price levels to set your stops varies depending upon your investment
philosophy. For example, Investors Business Daily recommends
setting "stops" at 8% below your purchase price. They
believe that investments that decline more than 8% very seldom
recover and become profitable. Sterling Investment Services
has a primary focus on "Technical Analysis" a/k/a
charting, and our philosophy. is to set "stops" based
upon levels of support and resistance that would indicate trend
reversals and a change in the expectations of the trade entered.
Regardless of your investment philosophy, the important thing
is to set "stops" and learn to trust them and live
Next week I'll discuss our Third Rule of Trading.
The Prime Update column of the Sterling Weekly
is a new feature in response to our decision to resume publishing
the Sterling Investment Services Prime Stock
Newsletter. The Prime Update column will serve to inform
readers of the Sterling Weekly of developments in stocks recommended
by the Prime Stock Newsletter.
In the April
22nd edition of the Prime Stock Newsletter I recommended
the shares of Marvel Enterprises 'MVL' at $16.53/share. The
news of the strong opening of the movie "X2: X-Men United"
(which is based on characters from the X-Men Marvel Comic books)
has helped push the shares of 'MVL' to a closing level of $18.30/share
for a gain of $1.78/share with in 2 weeks. Not bad, considering
the current market conditions. I am recommending that the "Stops"
on 'MVL' are raised to $17.45/share. This morning, 'MVL' announced
better than expected earnings and has raised its yearly guidance
to $0.96-$1.07/share. The company will host a web cast today
for all investors at 10:00am via. www.marvel.com
In the May
1st edition of the Prime Stock Newsletter, I recommended
the shares of Cisco Systems at $14.98/share. Yesterday the shares
of 'CSCO' closed at $15.38/share. While I am not totally clear
as to where to set the "stop" to protect my profits
in CSCO, do not violate the 7th Rule of Trading and allow a
profitable position to turn into a loosing trade. After the
close of the market today, CSCO will announce it's earnings.
The consensus estimate is for $0.14/share.
The Dow Jones Industrial
The Dow Jones Industrial Average closed Monday
at 8,531.57 down 51.11 points. The Dow Jones Industrial Average
(INDU) has broken through the recent upward resistance level.
Once resistance is broken, the "Rule of Thumb" is
that the resistance then becomes support. We'll see if that
The current chart of the Dow shows converging
trend lines that the Dow will either fail to move higher and
move lower and possibly test the 8,000 level again or the
Dow will break through the near term downward trending resistance
line and be able to sustain a move to the 8,750 level. I know
that sounds vague, but please keep in mind I am not trying
to predict the movement of the market, I am simply interpreting
the chart patterns and what they tell me. Since I believe
a trend remains in place until it is broken, and the current
trend is higher. The Bottom Line: The overall
market should move higher.
Today's Opinion: Closed @ 8,531.57
Current Expectations: Called
Higher on April 14th, with the close @ 8,351.10 The Index
should move higher and test 8,521.97. If the Dow closes above
The S&P 500:
The S&P 500 closed Monday at 926.55 down
3.53 points. The trend of the S&P 500 continues to be to
the upside. The S&P 500 has now entered a level that has
twice before provided resistance to further upward movement
during the last 12 months. Whether the S&P 500 can move
through this resistance or turns back lower is unclear. How
ever, I think the answer to that question will be found in the
movement of the Dow Jones Industrial Average as I believe the
Dow leads the S&P 500, not the other way around.
Today's Opinion: Closed @ 926.55
Current Expections: Called higher with the close of 885.23
on April 14th. The market should continue to move higher and
test 931.66 and then 938.87 on a closing basis.
The NASDAQ 100 (NDX)
The NASDAQ 100 Index closed Monday @ 1,136.26
down 0.25 points. The NASDAQ 100 (NDX) closed above 1,127.06
on Friday of last week. In the process the NDX completed a cup
pattern with a measured move to 1,302.22 Whether the NDX moves
directly towards that level or suffers a minor retracement before
moving higher remains to be seen. But my suspicion is that somewhere
before long we will see a pullback in the NDX. The market is
definitely different than it was during the "Bubble Years",
during which analyst seemed to only be concerned with setting
new higher price levels for the stocks to obtain. Witness last
week's analyst comments on Dell Computer, citing the recent
price appreciation and valuation concerns as a reason to downgrade
the shares of Dell. Something you almost never saw during the
"Bubble Years." I think this activity is going to
be more common, and as a result the indices are going to subject
to increasing volatility.
Current Opinion: Closed @ 1,136.26
Current Expectations: Called Higher with the close
on April 14th @ 1,048.31. The NDX should move higher and test
1,302.22 on a closing basis.