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.
With this is mind I have decided to revisit the topic of setting
"stops" from the May
6th edition of the Sterling Weekly.
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
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
I am proud to announce that we have added the upcoming week's
economic calendar as a new feature to the Sterling Weekly Newsletter.
In deciding which of the available calendar's to add to the Sterling
Weekly, the economic calendar being the most important was an
easy decision as a new feature. Look for additional calendar's
to be added and other new features in the coming months.
for the week of August 4th
Sterling Investment Services is an investment
research and money management firm publishing the Prime Stock
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The Dow Jones Industrial
Today's Opinion: Closed @ 9,186.04
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 @ 982.82
Current Expections: Called lower with a Sell Signal on the
close of July 15th @ 1,000.42 . The S&P 500 should move
lower and test 974.50 While I am only slightly surprised at
the divergent trends between the S&P 500 and the Dow Jones
Industrial Average 'INDU', this is not the 1st time I've seen
The NASDAQ 100 (NDX)
Current Opinion: Closed @ 1,267.38
Current Expectations: Called higher with the close
on July 22nd @ 1,257.63. The NDX should move higher and test
1,298.37,and then 1,325.80 on a closing basis.