A Word of Caution
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.
Earlier in the week, I was talking with a friend about how easy it has become. I mean, you just find a pullback, cup and handle, breakout etc., put your money down and pick you money up (either later that day or at most a few days later). Luckily, I encountered a few losses soon after our conversation. You might ask, why am I “lucky†for having a few losses? I’m lucky because this reminded me that it’s not that easy. Trading is a lot of hard work and takes serious discipline. The moral, don’t let the markets lull you into a false sense of security.
Today, the VIX hit it’s lowest low (a) since July 16, 1999 (b) -two days before (c) the last serious correction. Does this mean the market is definitely headed lower? No, but it does mean that we are overextended and due for a correction. Therefore, continue to tread lightly, use tight stops and be willing to play both sides of the market.
With 5,10, 20 and 40! point plus moves, it seems that many stocks are way overextended. Therefore, tonight you may notice that I’m focusing more on pullbacks. With that said, several look interesting to me. Interleaf [LEAF>LEAF], mentioned last in the strong Software Sector [$CWX.X>$CWX.X], appears to be rallying out of a pullback/Trend Knock Out (see last nights archive for an explanation of the pattern). Qualcomm [QCOM>QCOM], mentioned last night (see archive), appears to be rallying out of a pullback. Gateway [GTW>GTW] appears to be in a fairly shallow pullback after a fast move. Filenet [FILE>FILE], mentioned last night, still looks like it has the potential to resume its strong uptrend. And finally, Advanced Micro Devices [AMD>AMD] looks poised to rally out of a pennant formation (a).
Silknet Software [SILK>SILK], mentioned over the past few nights, now looks like a high level cup and handle. Continue to look for a buying opportunity here but as I’ve said recently, wait for the stock to re-assert itself (i.e. for it to take out the prior 1-2 bar highs) before attempting an entry.
On the short side, Textron [TXT>TXT], on the Implosion 10 Technology List, has retraced back to its 50-day moving average (a) and looks poised to make another run at its old lows.
Best of luck with your trading on Monday!
PS – Reminder: Protective stops on every trade!