Consider Shorts
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 .60 points lower and the Bond Market Futures are trading up 1 tick.
Heads up, the PPI is scheduled for release tomorrow morning. With all the focus on inflation, this will likely cause volatility in early trading in both the bond and stock markets.
Tonight, we have three indicators pointing lower on the Market Bias Page combined with an overbought McClellan Oscillator. This suggests a downside bias for tomorrow. In this environment, you might want to tighten stops on longs and consider some candidates on the short side.
On the Pullbacks List, Transactions Systems Architecture [TSAI>TSAI] is in its first pullback since rallying off of its lows and Prodigy Communications [PRGY>PRGY] look poised to rally out of a big picture cup and handle formation.
Rational Software [RATL>RATL], on the Momentum 10 Technology List, is a shallow pullback that looks poised to resume its uptrend.
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, US internetworking [USIX>USIX] is a pattern I call a Trend Pivot Pullback. This is where a strongly trending stock has a one day false rally. The theory is that it draws in the fast money and subsequently shakes them out. This often clears the way for the security to resume its uptrend. Just wait for it to prove itself by taking out yesterday’s pivot high (a).
For you breakout players, Axent Technologies [AXNT>AXNT], on the Internet Fab 5 List, broke to new highs on an expansion of range today.
On the short side, Affymetrix [AFFX>AFFX], mentioned last night, appears to be breaking down out of an inverted cup and handle formation.
Best of luck with your trading on Wednesday!
Dave Landry
PS – Reminder: Protective stops on every trade!