Here’s Why Today’s Action Doesn’t Concern Me
The natural reaction of anyone who woke up this morning long
and looked at the futures and overseas markets was “Oh, nuts.†You may have
spent much of the morning planning exit strategies for many of your holdings.
“OK, what can I get out of quick to minimize my damage?†There is nothing wrong
with looking to protect your capital. As a matter of fact, it should be priority
#1.
Don’t stop there, though. On
mornings like today, you need to consider how you could use gap-filling
strategies to put some money back into your account. Keep the big picture in
mind. This morning it looked like this:
-
The market has been in a
sustained uptrend for 6 months, and made news highs as recently as Friday. -
Large gaps are many times
overreactions.
With those two things in mind,
it’s no big stretch for you to think there may be some nice buying opportunities
out there. The place to focus is on leading stocks that are already in your
watch lists.
Ecollege
(
ECLG |
Quote |
Chart |
News |
PowerRating) is a stock that I
mentioned on Wednesday that provided traders with some opportunities
today. Traders already in it could have added shares, while those who missed the
breakout last week could have initiated a position.
First let’s take a look at the
daily chart, as of Friday evening.
src=”https://tradingmarkets.com/media/2003/Hanna/rh092203-01.gif” width=”512″ height=”404″ />
As you can see, after the huge
breakout, ECLG had pulled back in an orderly manner for the last couple of
days. A Connors’ Trading Window setup combined with the doji on Friday should
have had short-term traders on the lookout for an entry above Friday’s high of
$19.10.
With the big move down in the
markets overnight, ECLG gapped down over 3% this morning. It opened just below
Friday’s low in doing so. Below is a five-minute chart of ECLG with potential
entry points marked off.
src=”https://tradingmarkets.com/media/2003/Hanna/rh092203-02.gif” width=”518″ height=”405″ />
The next time the market gaps big in a counter-trend direction, remember to
think about what opportunities it may be providing you. A quick review of your
watch list to see which stocks have gapped along with the market may reveal some
good potential candidates for trades.
As far as the market goes,
today’s action does not concern me greatly. Although the final numbers don’t
look great, volume was light after the initial scare. Many of the leading
stocks I follow finished with green (or white — depending on your software)
candlesticks. ECLG wasn’t the only stock to bounce back nicely after a gap
down. With regards to the indices, following a breakdown of the morning range a
little after 2pm, they managed to rally for the last hour and a half and
finished near the middle of their ranges. It wasn’t a wonderful bullish
turnaround day, but it wasn’t Japan (-4% overnight) either. Therefore, the plan
remains the same. Focus on the long side, but keep an eye out for distribution
and breakdowns in leading stocks.
Best of luck with your trading,
Rob Hanna