Here’s How To Play A Tricky Market

December 11, 2002
Dave Landry

On Wednesday, the Nasdaq opened weaker but quickly reversed
and rallied for much of the morning. It then chopped and drifted lower for the
remainder of the day but did manage to close slightly in the plus column..

The S&P put in a similar performance.

So what do we do? The song pretty much remains the
same: As I scan through hundreds of charts
tonight, I’m still seeing numerous stocks in a variety of sectors that appear to
be rolling over. Of these, many could set up soon as shorts. On the long side,
with the exception of a gold or two, there were very few meaningful stocks setting up. Therefore, I still
think transitional shorts (e.g., First Thrusts, Bow Ties, Inverted Cup &
Handles etc.) could offer opportunities. However, based on the recent poor
trading environment, I
still see no reason to get too aggressive.

Looking to potential setups, the semiconductor equipment
makers look like they have the potential to resume their rollover.

Considering the above, Varian Semiconductor
(
VSEA |
Quote |
Chart |
News |
PowerRating) looks like it has the potential to continue its
rollover out of a First Thrust.

Surviving A Volatile Market

As promised, below is a look at how money management could
have been used on some of the stocks mentioned over the last few weeks. Admittedly, it
hasn’t been very pretty lately. However, as you can see, proper money management
can help cushion the blow.

No Tickee, No Tradee

Waiting for entries can often keep you out of bad trades.
For example, DST Systems
(
DST |
Quote |
Chart |
News |
PowerRating), mentioned on 12/06/2002, sold off fairly
hard on the follow trading day (a) but fortunately did not trigger (b).

National Instruments
(
NATI |
Quote |
Chart |
News |
PowerRating), mentioned on 12/02,
provides another example of why it is important to wait for entries. Notice that
it sold off hard (a) but never triggered (b).

Protective Stops On Every Trade

Artisan Components
(
ARTI |
Quote |
Chart |
News |
PowerRating), mentioned on 12/05,
triggered on 12/06 (a) and initially moved about a point or so higher. However,
it, sold off hard with the broader market sell off on 12/09. Fortunately, in a situation
like this, a protective stop (b) would help to cushion the blow.

Smoke ’em If You Got ’em

Although it’s somewhat marginal example, F5 Networks
(
FFIV |
Quote |
Chart |
News |
PowerRating)
shows where an entry (a), protective stop (b), taking partial profits (c) and
moving a stop to breakeven (d) could have been employed.