Wednesday, October 26, 2005

Review



I wasn't too satisfied with my assessment of the markets today. First, I bought the QQQQ, which is very uncharacteristic of me. The reason why I don't like buying indexes is because I believe I am buying a lot of bad stocks when I buy the index. 50% of the stock movement comes from the overall market, and 50% comes from the stock itself.

I believe one can maximize the probability that a stock will go up if they choose the "strongest" stock. Although "strong" is a very subjective term, it could mean a fundamental advantage within the company, relative strength, or an interesting technical pattern the stock may be forming. Picking "strong" stocks increases the probabiliy that a stock will go up even when the market goes down.

This morning, I saw a perfect opportunity in GOOG when it was trading between 349 and 350. For some reason, I didn't take it and bought the QQQQ instead. Perhaps a reason is because I am too tired to think properly at 6:30 am when the market opens.

To address this issue, I am going to prepare more the night before. Right now, I am still eyeing XLE (although its an idex, all energy stocks move the same, so there isn't much advantage to picking an individual energy stock....plus, the implied volatility is lower for options). I sold my XLE position today for a small gain, and I think it will drop below 47.5. Since it previously bounced off a major bottom trendline, I believe it will uptrend for a while, so I will be looking to buy XLE again pretty soon.

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