Overbought or Oversold Conditions
Each evening we focus on the most interesting aspects for the upcoming trading day. The comments are based on observations of the nightly updates of the Stocks/Sectors and Market Bias pages. They are provided for educational purposes only and are not intended to be direct trading advice. Also, keep in mind that these remarks are made up to 12 hours in advance of the markets opening. Therefore, overnight events may alter the outcome of these observations.
At the time this is being published, the S&P Globex Futures are trading .50 points lower and the bond market is trading down 1 tick.
Markets can resolve an overbought condition in two ways. They can sell off (correct) or they can trade sideways. So far, the S&P has been walking off this overbought condition by trading sideways (a). However, continue to trail stops tightly on longs and continue to consider some candidates on the short side until this situation resolves itself.
Advanced Micro Devices [AMD>AMD], mentioned last night, still looks poised to rally out of a pennant formation (a).
Interleaf [LEAF>LEAF], mentioned last night, has formed a pattern I call a Trend Pivot Pullback. This is where a strongly trending stock has a one day false rally during a pullback. This pivot point-a high surrounded by two lower highs-draws in and subsequently shakes out the fast money and often clears the way for the stock to trade higher. Look for a buying opportunity here but wait for it to prove itself by taking out the pivot high (Friday’s high, around 42 1/8).
Texas Instruments [TXN>TXN], on the Momentum 10 Technology List, closed well today and looks poised to rally out of a pullback.
As you know, the Trading Where The Action Is List contains the most volatile stocks and is only for the most aggressive traders who are willing to assume a higher degree of risk in order to capture larger gains.
With that said, Ancor Communications [ANCR>ANCR] closed well today and looks poised to rally out of a pullback and Net Perceptions [NETP>NETP] rallied sharply today and appears to have resumed its fast move from lows (from early November).
On the short side, Textron [TXT>TXT], mentioned last night (see archive), still looks poised to challenge its old lows. Lands End [LE>LE], on the Proprietary Implosion List, has been consolidating for the past week at lower levels and looks poised to resume its meltdown.
Best of luck with your trading on Tuesday!
PS – Reminder: Protective stops on every trade!