Mid-Week Update

(3/7/00)

As mentioned in our weekend update the Contrarian Indicators indicated the  possibility of a sell off in the markets and unfortunately it has happened.  (For those interested you can review the importance of the Contrarian Indicators in Lesson 3 of the  Amateur Investor Tutorial).  The bigger question is whether the Nasdaq is going to have a huge sell off or not.  The key support levels will be at the 21 and 50 Day Exponential Moving Averages of 4600 and 4300 respectively so watch how the Nasdaq reacts if it approaches these levels. 

Suffice to say this may be a good time to sit on the sidelines and let things settle down before establishing any new positions in stocks.  Also remember not to let any stock that you may have purchased recently drop 5%-8% below what you paid for it (this is one of William O'Neils CANSLIM rules and we follow it closely).   I know this may be a tough rule to follow however in my early days of investing if I would have adhered to this rule I would have lost considerable less money.   5%-8% losses can turn into 50% or more losses very quickly in volatile markets.  Also don't buy stocks that are making new lows because the stock price is now cheaper.  Stocks that make new lows will likely continue to do so until a major reversal takes place in the markets. 

Some stocks that held up well today despite the sell off in the markets included ADRX, LENS, PWAV, SILI and ZOMX.  It's always important to note how stocks react during certain events.  In mid-February two stocks acted really well when the Nasdaq ended down over 150 points one day.  The two companies were FIBR and SDLI and over the next two weeks both stocks saw significant price appreciation.  So continue to watch those five stocks mentioned above and see how they act over the next several days.

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