The One Question You Need To Ask About Wednesday’s Action
Trail ‘Em If You Got ‘Em
One simple trailing stop technique that I occasionally
use (especially on strongly trending stocks) is a 2-3 bar trailing stop. This
means that you place your protective stop below the lowest low of that
period. Let’s take a look at Ryland Group
(
RYL |
Quote |
Chart |
News |
PowerRating), a stock mentioned
recently(a). Notice how this simple technique has worked nicely (so far!).
Looking to the indices, on Wednesday, the Nasdaq initially
rallied but quickly found its high and sold off fairly hard. However, if found
its low in early trading and generally worked its way higher for the remainder
of the day. This action has it closing well.
The S&P put in a somewhat similar performance.
So what do we do? As you know, based on the
stalling action near the old highs and overbought nature of the market, I have
been looking for a correction as of late. Wednesday’s action has me scratching
my head. Is this enough? The fact that the indices recovered after trading lower
is certainly a positive but is it an “all clear?” Usually when
I’m unsure like this (and let’s face it, you never REALLY know), I tend to trade
at a reduced size. Therefore, keep it light on the long side. On the short side,
in light of Wednesday’s positive reversal, you probably want to wait for some
sort of confirmation (e.g. sector confirmation and entries).
Looking to potential setups, Eresearch Tech
(
ERES |
Quote |
Chart |
News |
PowerRating), in
the strong health services–med labs sub-sector(a), looks like it has the
potential to resume its strong uptrend out of a Trend Pivot Pullback (email me
if you need the rules).
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
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