Support and Resistance


To kick things off today, I’m going to borrow from Jason Cimpl’s morning message to his TradeMaster Daily Stock Alerts readers:
Yesterday [Wednesday] was a classic day of consolidation. Stocks moved lower in the opening minutes, but the [S&P 5000] quickly found support at 1085. This price action was good to see because the prior day’s move found support at 1088, which should not have acted as price support. Then [the S&P 500] moved sideways for most of the day before shooting higher in late day trade to retest 1097 resistance.
Yesterday’s activity, where both bulls and bears defend critical prices, indicates that the market is setting up for a big move.
The big move Jason is forecasting appears to be another test of Dow 10,500. Will it break higher this time? I’d say the chances are pretty good. We watched the Dow flirt with Dow 10,500 eleven times since November 16. Each time, the advances were coyly rejected.
When an index (or a stock, for that matter) fails to beat a resistance point such as 10,500, it will usually move lower to test support levels. As Jason notes, we saw that happen yesterday.
Another little factoid about support/resistance points: it’s generally believed that repeated tests of a particular resistance point weaken it. It’s almost as if the bulls become more comfortable with 10,500 and so are less hesitant to buy at that level.
We’ll see what happens, but I think we could see a close above 10,500 in the near future.
*****The catalyst for today’s move higher is the U.S. dollar. New jobless claims came in higher than expected. That suggests to traders that interest rates will stay low, which keeps the dollar weak and stock strong.
I know it seems schizophrenic to suggest that investors’ feelings about interest rates can change so dramatically from day to day. But think of interest rates, or the value of the U.S. dollar as just one numerical value that gets plugged into a massive formula designed to calculate fair value for stocks.
When you re-run the calculation every day, even a small change, like the value of the dollar, or a reasonable expectation for the first interest rate hike changing by 6 months, can easily affect the determination of fair value by 1%. And so we get a 1% rally or sell-off.
It still may seem silly to let mathematical formulas take the place of good old fashioned common sense, but that’s what many mutual and hedge funds do these days.  
*****Yesterday, I gave you some of the details about the ridiculously cheap gold stock I recently recommended in SmallCapInvestor PRO. The stock has been up as much as 6% today. But more importantly, the company announces earnings this afternoon and has a conference call scheduled for 10 AM ET tomorrow.
Now, this company is seeking to move from the obscurity of the OTC market to the NYSE. And the chances are good that we’ll hear some news about this tomorrow. Needless to say, anything positive and this stock start’s the move from current prices around $0.95 to my target of $2 a share.
I’m usually pretty conservative with my price targets, but this stock is so cheap compared to other miners, I don’t think $2 is a stretch. It’s profitable, has very little debt and a P/E of 18. The industry average P/E is 28, and some miners trade with P/Es as high as 40! Click HERE for details on joining SmallCapInvestor PRO.
*****Back in September, I recommended a momentum trade on a commercial REIT. I heard from one reader, Patrick P. who said:
I am pleased to inform you that I bought [commercial REIT] on your recommendation at $1.40 and was very pleasantly surprised when the stock soared to nearly $3.00 in a few days. I put a trailing stop on it at this stage and sold 2/3 for $2.83 for a very nice profit. This was even better than Jazz which I sent you an e-mail on a couple of weeks ago also. I have tried a lot of other services out there and I can say you guys are the best ! You have the Midas touch !!
Well, I don’t know about Midas touch, but I do my best to bring good trading ideas to Daily Profit readers whenever I can. And I think it may be time to pick up this commercial REIT again for another run higher. Patrick made 102% last time…I’ll include details in tomorrow’s Daily Profit.


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