Filter Out Dr. Doom
Time to switch off the tube. The
pundits were quick to fill the airwaves Thursday with hand-wringing accounts of
how crisis in the Middle East spells doom for our financial markets and the U.S. economy.
I have no idea where the Dow, the
Nasdaq or the S&P are headed. I only know that paroxysms of public angst can
trigger the kind of sell-offs that make for market bottoms. As I’ve noted in this
column, the market has handed us a multitude of high probability shorts over the
past two weeks, and it may continue to do so. But keep your contrarian
perspective!
Don’t let the barrage of negative news
or the televised anxieties of market gurus mesmerize you. Listen to the market,
not the talking heads.
If you’re an intermediate-term trader,
watch for high relative strength stocks to complete bases. Watch for the major
indexes to move higher, coinciding expansions in the daily trading volume on the
New York Stock Exchange and/or the Nasdaq Stock Market.
If your trade over shorter time
frames, focus on your indicators, not the pundits. I like to keep an eye on the
Connors VIX Reversal signals. To consult these signals after each market close,
check out TradingMarkets’ Market
Bias Indicators, located in the lower half of the our Proprietary
Timing Signals page. A positive signal from CVR 1 with a supporting
positive signal CVR 3 is the highest probability combo, especially if the
Chicago Board Options Exchange Volatility Index closes very close to the bottom of its range the day of the 1.
At present, CVR 3 and CVR 6 are positive. The others are neutral.
For more on how to trade these
signals, read the Connors/Boucher Market
and Mutual Fund Timing Course. All multi-week TradingMarkets courses
are available free to one- and two-year members.
The main problem I see for
intermediate-term traders is the scarcity of stocks with high 12-month RS scores
building bases. Most of these outperformers are extended or well off their old
highs. If I did get a bottom sign on the major averages next week, I’d have precious
little to buy for the intermediate-term momentum trade.
Veritas Software
(
VRTS |
Quote |
Chart |
News |
PowerRating) had been
struggling to base, but the stock retreated over the past two weeks and sold off Thursday despite positive news. The Mountain View,
Calif.-based provider of storage management software reported Q3 pro forma net income of 16 cents a share. That compares to 9 cents a
year ago and analyst estimates averaging 14 cents, according to First
Call/Thomson Financial. Revenue climbed 73% to $317.2 million.
All stocks, of course, are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
check out the Money
Management area of TradingMarkets’ Stocks Education section.