Follow The Leader
Duke Heberlein is
on vacation. Michael Brooks wrote this article.
The “Applet Analysis Alerts” will pick an interesting stock —
one having the
potential to make a strong move — coming across the TradersWire applet. We will
then try to find other stocks within the group that may also
be poised to make a strong move. It is then your job as a trader to decide which
of these stocks to trade. Often, if there is a clear leader among the group, we
will point you in that direction. Take a look at today’s alert:
10:26:29
Applet Analysis Alert
RJ Reynolds (RJR)
retouches the 20-day MA. Currently RJR is boxed in between the 20-day and
50-day MAs. RJR has pulled back over the last week and may be trying to
bounce higher. If RJR can move above the 20-day MA, it may have some
upside potential. Swing traders might want to add this to your watch
list. Also watch Phillip Morris (MO),
which has a similar pattern. If I had to choose between the two, I would probably
go with MO since it is above the 20-day MA and has pulled back from
recent highs.
Of these two stocks, why was MO the trade of choice? First, MO is coming off
a recent high and is forming higher highs and higher lows. This compares to RJR
which has formed a lower low (this could be part of a bullish symmetrical
triangle but we have no way of knowing, at this point). In addition, MO is
already above the 20-day moving average, while RJR is just below.
Does this mean MO will turn out to be a better long trade than RJR? As
traders, we will only know the answer after the fact. What we do know is that the
odds favor MO, and we must always go with the odds. Over time, sticking with the
odds will help keep your account in the plus column.
So, the next time you are deciding on a group of stocks to trade, don’t just
randomly choose from the group. Analyze each potential prospect and go with the
leader and let the others follow.
Have a great day trading!