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May 6th, 2003

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Over 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 risk!"

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 order.

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 by them.

Next week I'll discuss our Third Rule of Trading.

Prime Update:

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.

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 Average:

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 happens.

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 8,771.01

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.

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Disclaimer: The Sterling Investments series of newsletters is produced by Sterling Investment Services, Inc. All information used in the production has been obtained from sources believed to be reliable and accurate. Sterling Investment Services does not warrant or assume any liability for inaccuracy of the information used to produce our publications. To receive further information on these services please visit our web page at: If you would like to contact us our fax # is (404)-816-8830 Email address is: Sterling Investment Services may hold positions in the securities recommended or may be providing consulting services to the companies mentioned within this report.
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