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Sterling Weekly for August 12th, 2003

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For the last couple of weeks I have been commenting in the Sterling Prime Stock Letter about the apparent narrow trading range the overall market has fallen into. Not only does this make it difficult to identify new trends in individual stocks for trading opportunities, but it causes increased volatility combined with smaller moves in what you may be attempting to trade. What this results in is smaller moves in the expected direction, the need to be willing to take profits sooner, and re-emphasizes the need to correctly use "stops" to protect your positions. One of the key things to maintaining profitability in trading is to protect your profits and limit your losses.

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 Third Rule Rule for Trading, "Move Your Stops Up (or Lower for Short Sales) to Lock in a Profit as Soon as Possible"

While the 1st Rule of Trading, "Never let a Profit Turn into a Loss!", was designed to provide guidance and assistance with trading a security near its cost basis. The 3rd Rule of Trading, "Move Your Stops Up (or Lower for Short Sales) to Lock in a Profit as Soon as Possible", is designed to provide guidance when a stock has moved more than a minor amount above its cost basis. One of the most important parts of being a successful trader or investor is to avoid taking unnecessary losses that erode your profitable trades. The 3rd Rule has 2 parts, the first is to set your initial Stop a minimum of $0.25/share above your cost basis. This level above the cost basis was chosen to provide a level of protection from the volatility or rapid movement of a stock price. With a $0.25/share margin, if the stop is triggered in a rapidly moving market, the execution price should still produce a profitable trade.

The second part of the 3rd Rule, is to periodically move your stops higher. The theory behind the second part of the 3rd Rule is simple enough; as a stock moves higher the chart will show levels of support and resistance that can be used to adjust your stops to protect profits. This is useful for both short and long term trading. It isn't hard to see how following this rule would have benefited the shareholders of Worldcom, Enron, and a whole bunch of other companies that have fallen from spectacular highs to horrific lows.

Economic Calendar for the week of August 12th
DATE Est. Time Release For Actual Consensus Prior Revised From
Aug 12 2:15pm FOMC Meeting            
Aug 13 8:30am Business Inv. Jun   0.0% -0.1% -0.2%  
Aug 13 8:30am Retail Sales Jul   1.3% 0.8% 0.5%  
Aug 13 8:30am Retail Sales ex. Auto Jul   0.3% 0.5% 0.7%  
Aug 13 8:30am Export Prices ex Ag Jul   N/a N/a -0.1%  
Aug 13 8:30am Import Prices ex. Oil Jul   N/a N/a 0.5%  
Aug 14 8:30am Trade Balance Jun   ($42.0) Bill. ($41.5) Bill. ($41.8) B  
Aug 14 8:30am PPI Jul   0.1% 0.2% 0.5%  
Aug 14 8:30am Core PPI Jul   0.1% 0.0% -0.1%  
Aug 14 8:30am Initial Claims 8/09   385K 395k 390k  
Aug 14 2:00pm FOMC Minutes            
Aug 15 8:00am Empire State Index Aug   23.0 20.5 22.6  
Aug 15 8:30am CPI Jul   0.1% 0.1% 0.0%  
Aug 15 8:30am Core CPI Jul   0.2% 0.2% 0.1%  
Aug 15 9:15am Industrial Prod. Jul   0.2% 0.2% 0.1%  
Aug 15 9:15am Capacity Util. Jul   74.5% 74.4% 74.3%  
Aug 15 9:45am Mich. Sent. Prel. Aug.   92.0 91.0 90.9  

Prime Update:

Sterling Investment Services is an investment research and money management firm publishing the Prime Stock Newsletter. The Prime Stock Newsletter is a daily comprehensive newsletter that is useful for investors and traders alike. Whether you are looking for short term trading opportunities ranging from day trading to a couple of weeks or if you looking to acquire a long term portfolio at smart entry points. Subscriptions a $30/month. a 3 DAY TRAIL SUBSCRIPTION IS ONLY $4.95 (more).

Highlights from Recent editions of the Prime Stock Newsletter
Recommendation Date Entry Point Recent Close or Exit Price Profit Note
Short sale of Sandisk 'SNDK' Aug 7th $51.81 $47.90 / Friday's Close $3.90 Should move lower and test our next target of $43.05
Short Sale of "IACI' Aug 6th $36.65 $34.71 w/ Friday's Close $1.94 Should move lower and test our target of $29.95
Short Sale of Goldman 'GS' Aug 5th $84.85 $82.90 covered on the 5th $1.95 not bad for 1 day

The Dow Jones Industrial Average:

Today's Opinion: Closed @ 9,217.35 Current Expectations: Called higher with the close on May 27th with the close of 8,781.35 The Dow Jones Industrial Average 'INDU' should move higher and test 9,323.02 on a closing basis. The Dow Jones Industrial has been moving in a narrow trading range between 9,323.02 and 8,985.44 with a slight upward bias since the Dow reached its recent high of 9,323.02 on June 17th. While it is not easy to predict how long this trading range will last, if past history is any reliable indication, then we may see this market continue for another 4-8 weeks. My estimate is that we'll be in this trading range until shortly after Labor Day.

The S&P 500:

Today's Opinion: Closed @ 980.59 Current Expections: Called higher with a Buy Signal on the close of trading on August 8th @ 977.59 . The S&P 500 should move high and test 998.68 and then 1,007.84 On another note, since the Aug. 5th edition, on Tuesday Aug 6th, the S&P moved through our lower target of 974.50 with a close of 965.46

The NASDAQ 100 (NDX)

Current Opinion: Closed @ 1,23.14 Current Expectations: Called higher on August 9th with a close of 1,223.14. The NDX should move higher and test 1,267.38 and then 1,298.37on 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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