Why You Shouldn’t Worry About Missing The Rally

March 17, 2003
Rob Hanna

Wowâ€¦wow.Â
Since the lows on Wednesday morning, the S&P 500 is up
9.4%, the Dow is up 9.8%, and the Nasdaq is up 11.5%.Â
That is in three and a half trading days.
Wow. Today all three major indices
took out multiple short-term resistance levels, including their 50-day moving
averages, as well as recent highs. Volume
was also high today (not shown).

In my Wednesday
column, I said I was going to treat this as a dead cat bounce until it
proved to be more than that. Both possibilities
still exist. We are right now in a highly
charged, news-driven market environment where there is a substantial amount of
risk on both the long and short side.

This extremely volatile
environment is a prime reason why traders need to have contingencies in all of
their plans. Follow your set of rules and
know the possible consequences of each trade before you enter it.
Every trading style will have its day. The
last few days have been wonderful for reversal traders, while many trend traders
are left scratching their heads.Â

If this is the start of a new
intermediate-term market rally, then that is all it is â€” the start.
Real market rallies last more than 3 Â½ days, so donâ€™t worry about
missing it. Trade your signals.
Stick to your plan.

I received several questions
last week on trading dead cat bounces, so I will look to provide more detailed
examples in upcoming columns.Â With
the way the markets have rallied the last few days, most recent candidates have
not begun to roll over. The last three
days have not been the environment to try and sell short into, either.One question I received was
whether I would ever trade a dead cat candidate to the long side, assuming it
gave a reversal signal.Â My answer
is no. PEC Solutions
[PECS|PECS] provided an example of
this today.Â