Tread Lightly
On Tuesday, the Nasdaq opened higher but quickly began to
work its way lower. It found its low early in the afternoon and began to rally.
However, it stalled out late in the day and sold off going into the close. This
action has it closing just about where it opened.
The S&P bounced after approaching its July lows.
However, it too sold off going into the close.
So what do we do? The fact that the S&P bounced
near new lows is a positive, but I’m doubt that “the bottom” will be
that obvious. Also, the fact that the indices can’t seem to hold on to gains
suggests that the market remains vulnerable. However, we do remain very oversold
based on average advance/decline readings and price itself. Therefore, under
such mixed signals, probably the best course of action is to tread lightly on
new positions (either long or short). If your shorts managed to survive today’s
bounce, then I would honor your stops there and look to trail, should the
longer-term downtrend resume.
No setups tonight. We could see setups soon in retail,
banks, semis, software and other sectors in serious downtrends.
Trail ‘Em
Lately, I have been discussing using a trailing stop on the
Software Holdrs
(
SWH |
Quote |
Chart |
News |
PowerRating), mentioned recently (see archives). I was discussing using
using either a 1.5 point stop or a 2-bar high. For Tuesday, I had dropped the
stop down to 1.5 points (from Monday’s close). Going into Wednesday, let’s
assume that the trailing stop remains unchanged (a).
Best of luck with
your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
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