Do We Need A Genius?
It doesn’t
take a genius to look
at the Naz and realize that a pullback is in order.
How an intermediate operator plays the
market amid this backdrop, however, does
require some smarts.
A pullback would actually be desirable
for the intermediate player, as it would give some of the overheated glamours a
chance to sew the seeds of new pivots.
In turn, this would allow the trader
to either add on to existing positions or initiate fresh ones.
It would also help to further
differentiate the wheat from the chaff inside the growth complex.
As I said last week, however, it is not
a good idea to postpone a purchase until "after the next market
correction."
The reason is that it can be difficult
to pinpoint when that next market correction is going to occur — let alone when
it will end.
The memory of the November-December
advance is enough to keep this concept fresh in many minds.
So, the point here is not to sit on
your hands waiting for the next correction.
Instead, you should be closely
watching the beneath-the-surface action each day.
That means watch lists at the ready,
with alerts preset on your quote machine.
Meanwhile, from an intermediate-term
standpoint, the key to understanding the health of the current general market is
twofold.
First, looking at a chart of the Naz,
notice that last Monday’s volume (Aug. 28) was greater than the prior Monday’s
(Aug. 21) which was greater than the prior Monday’s (Aug. 14).
This is also the case when you compare
the prior three Tuesdays to their respective counterparts, the prior three
Wednesdays, and the prior three Thursdays.
The fact that volume increased as the
Naz crept up gives you objective evidence that the conviction level among
participants is increasing.
Moreover, the index put in 10
accumulation days versus 0 distribution days over the past three weeks (for more
on accumulation and distribution, please refer to the Intermediate-Term
Trading Course that I wrote with Greg Kuhn available on the TradingMarkets.com
site).
The pivotal, convincing session was
that of last Thursday (Aug. 31), with the Naz gapping open, closing at the top
of a wide-range bar on the thickest volume in some time.
It is to be noted that, when looking
at the price and volume bars for a single trading session, the most bullish
scenario is a gap open at or near what ultimately will prove to be the low of
the day, a wide-range price bar, a close at or near the top of that wide-range
price bar, and a material spike in volume.
Thursday’s action incorporated all of
these features.
Second, a bevy of speculative growth
stock glamours have shown nice base-building characteristics, with a good number
close to completing the right side of their cups and others breaking out.
As basic as the above two points may
seem, they have worked better than anything else at keeping me in the market
during intermediate advances and in a heavy cash position during intermediate
corrections.
And the beauty of it all is that you
don’t need to be a genius to apply it.
Among the names, BEA
(
BEAS |
Quote |
Chart |
News |
PowerRating) came
off on lesser trade as it decides whether or not to chisel a handle to go with
its five-month base.
Network Appliance
(
NTAP |
Quote |
Chart |
News |
PowerRating) drifted
lower on waning volume as it pauses just beneath the top of its six-month base.
Recent new issue McData
(
MCDT |
Quote |
Chart |
News |
PowerRating)
crawled into new high ground, but the session’s overall droopiness prevented it
from making extensive headway.
Bruker
(
BDAL |
Quote |
Chart |
News |
PowerRating), another
top-performing tertiary, also drifted back in normal fashion.
Check Point
(
CHKP |
Quote |
Chart |
News |
PowerRating) followed
through on Thursday’s average-volume breakout, though tepid turnover again
limited the explosiveness of its movement.
Gemstar
(
GMST |
Quote |
Chart |
News |
PowerRating), eased for the
second day as it constructs a handle to go with its six-month cup.