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Good Evening Fellow Traders,
Before going deep into WTCG, I want to touch a little bit on the psychology of the markets. First it’s important to note that the SPY and the QQQ are in confirmed uptrend if you follow William O’Neill’s system (Canslim), which I always follow to evaluate if the market will be in uptrend or not, because whether we like it or not, if the larger stocks move up, the Small Caps tend to follow (same on the way down by showing a lack of liquidity), but they always lag a little bit. So now by looking at the SPY chart, you can see that it has now crossed the blue line (20 day MA) and it’s consolidating, the next move on strong volume will tell us the direction, because right now it’s also stuck just under the red line (50 day ma).
Also another barometer to take into consideration is how one of the last bull markets’ leader is having trouble right now, namely AAPL. This is dragging lots of investors down.
So I think until the Fiscal Cliff is resolved, we might have this choppiness. And as explained above the Small Cap Penny Stocks markets are definitely affected by this as well.
WTCG didn’t finish so well, after being up over 50% just before 10h00 A.M. And this afternoon, after not being able to find support at the previous day’s close, it ended up finishing in the red.
BUT IF YOU FOLLOW THE GOLDEN RULES CAREFULLY this was a net flat or slightly positive day. I will explain below:
I want to touch on a few very important rules that will keep you profitable in situations like WTCG.
1) When a stock gaps up - if it runs, you have to stay in but track it using the 5 Min Lows on a 5 Minute Chart. In this case I did a first trade at the open at 0.031 at the open but sold at 0.036 when I saw it was not able to go through the 0.039 levels. This was a quick trade for 16% profit, not much but I was following my rules.
2) Then as I sent the update at around 10, it had the chance to fill the gap, but I never saw a reason to buy it, because it was not gaining traction at the 0.025 level as I had mentioned in my update.
3) Another very important rule I keep repeating (either in the golden rules or on the gap lesson) is that you never want to see a stock coming back under the level it closed the previous night, which was 0.025.
Anybody that keeps reading my newsletter should know all this by now, but I keep repeating it for the new members. In this market, which is relatively difficult, stocks have a tendency not to follow-through on moves, and if you had the shorts with that, you get panic selling like it happened around 0.022-0.023. With more pressure being added as it couldn’t bounce.
So here is the first chart showing the daily view.
Then the 5 Min chart that shows you the initial move up and then the potential bounce that never materialised at the 0.03 level.
Then here is a view of the 1Min chart that shows you clearly the lack of support at about 0.025 as it tried to show some green bars.
So I will wish you a great day tomorrow and will be looking for some solid trades.
Have a Good Evening
Alexander K. Neumann.
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