If You Want to Make Money, Keep Fear in Check

by Sam Collins | December 13, 2013 2:29 am

Stocks fell again on Thursday with losses focused more on small-cap stocks that had the biggest gains for the year. And volume fell for the first time in three days.

Initial jobless claims increased to 368,000, which was above expectations of 328,000. Some traders felt that this may cause the Federal Reserve back away from an immediate cut in their stimulus plan and put off the decision until January.

The yield on the 10-year Treasury note rose to 2.88% from 2.84% on Wednesday, indicating that there is still some consideration of Fed action next week. However, yields almost hit 3% in September and then backed off to under 2.5% in October.

At Thursday’s close, the Dow Jones Industrial Average was off 104 points at 15,739, the S&P 500 fell 7 points to 1,776, and the Nasdaq fell 5 points to 3,998. Volume on the primary NYSE market fell to 660 million shares with total volume at 3.4 billion shares. The Nasdaq traded 1.9 billion shares. Decliners led advancers on the Big Board by 1.4-to-1, and on the Nasdaq, decliners were slightly ahead of advancers.

Nasdaq Chart
Click to Enlarge

Chart Key[1]

Both small- and mid-cap stocks have taken a beating this week. But the Nasdaq, which represents the mid caps, is still fractionally above the support at 3,966-3,995. But it closed below the round number of 4,000 for the first time in almost three weeks and also sliced through its 20-day moving average at 4,009. Its MACD is on a sell signal.

RUT Chart
Click to Enlarge

The Russell 2000 small-cap index closed fractionally below its 50-day moving average after failing to hold at either its November breakout line at 1,123 or the 20-day moving average. Its MACD is also on a sell signal.

Conclusion: The most vulnerable stocks to profit-taking are those that have the biggest gains. For all of 2013, the small- and mid-caps indices have led by a wide margin.

It may be shocking to new traders to see some of their recent gains vanish in days or even hours in a volatile market, but a systematic plan to cut losses will lessen that anxiety. Stop-loss orders are a must for the short-term buyer. But even the long-term investor should know how much money he or she is willing to lose before exiting the market.

However, a solid trading plan should also include a list of stocks that the investor would like to own but are above a maximum “buy under” price. Recently, I’ve been providing those prices with our Trade of the Day[2] charts, because I believe that we are in a window of opportunity in a corrective phase of a powerful bull market.

The overall trend is most definitely up, and so traders and investors alike must control the most powerful emotion of all — fear — if they are to make money in the next phase of the bull market. Buy solid stocks on weakness even when your emotions say otherwise.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[3].

For a list of this week’s economic reports due out, click here[4].

  1. [Image]: https://investorplace.com/wp-content/uploads/2013/05/chart-key.gif
  2. Trade of the Day: https://investorplace.com/category/options-trading/trade-of-the-day/
  3. click here: http://www.bloomberg.com/apps/ecal?c=US
  4. click here: http://www.bloomberg.com/markets/economic-calendar/

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