Why The Indices Could Be In Bounce Mode
If You Are New To This Column, Read This
Judging from my emails, it appears that there are some new
readers to this column. WELCOME! (If you are a
longer-term reader, you might want to skip or skim the next few paragraphs).
Therefore, I thought now would be good time to (re) explain my approach.
My
style is momentum based swing trading. I look for patterns that
have the potential for short-term gains with the potential of becoming a
longer-term winner. I believe one of the truest stock markets adages is
“the trend is your friend”. However, this doesn’t mean that I buy or sell short a stock just because it’s trending. You’re better off waiting
for a correction and then some sort of sign that the trend is resuming. Said
another way, I look for mostly for pullbacks (and pullback related patterns) and
an entry. Setups don’t exist in a vacuum though. Since a rising tide tends
to lift all boats, the sector action and market itself should also agree with
the stock’s trend. Finally, I realize that all of these concepts are
worthless without proper money and position management. This includes using
protective stops, trailing stops and taking partial profits.
This column reflects the “top down” approach
described above. I first look at what occurred in the trading day in the
indices. I compare this with short-term support/resistance and the longer-term
trend. I also will usually point out if any of my patterns or market timing
systems are triggering at this point. Sector action, when applicable, is
discussed next. I then discuss a general game plan based on what I’m seeing in
terms of market action, sector action and the setups I’m seeing in the stocks
themselves. Finally, I usually show one or two stocks which reflect the above
analysis. Also, on occasion, I’ll show money management and position management
learning examples based on stocks mentioned recently in this column.
Here at TradingMarkets.com, I have numerous articles and
column archives, several forums, a book, a CD ROM, and a video that describe in detail all
of the above. Check them out! I also personally answer each and every one
of my emails (eventually!). So feel free to email me if you have any questions.
Sincerely,
Dave Landry
Looking to the indices, on Wednesday, the Nasdaq chopped
back and forth in early trading but managed to rally later in the day. This
action has it closing well and puts it right at its 50-day moving average (the red line below).
The S&P put in a somewhat similar performance. This
action puts it back above its 50-day moving average.
So what do we do? I’m still not
crazy (some may argue that statement) about the overall action in the sectors.
However, in the indices, Wednesday’s reversal from an oversold condition is
triggering numerous buy signals in the systems that I have created/follow.
Although I’m not nuts (another point some would argue) about jumping in here, I
think since the systems have an edge statistically* (that the market will be
higher within 3-7 days), it may be worth a shot.
Considering the above, look for a buying opportunity in the
index shares (vs. playing individual issues).
Best of luck with your trading on Thursday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
P.P.S. Learn my best swing
trading strategy in my new interactive CD-ROM. Click
here now for details.
*I know, “statistics are worthless, 75% of
all people know that”–Homer Simpson