Yawn
The stock reactions to positive and
negative news Tuesday were lackluster, another sign that we’re in a slow
consolidation. The market has priced in the downside, but the severe damage of
the past bear has left many issues moribund under mountains of overhead
resistance.
As a result, I have
no setups or breakouts to show you today. Instead, I’ll show you what to avoid.
Nokia
(
NOK |
Quote |
Chart |
News |
PowerRating) said it expected flat
earnings for the first quarter of 2001. Reuters interpreted the report to
confirm fears that the wireless phone maker “is succumbing to a sector
slowdown.” The stock sold off and cracked below support at 36, but then
buyers swooped in to raise the stock to the top of its range. So much for
providing a gap-down
short. When you short, you want an imbalance favoring supply over
demand. Nokia looks weak here, but it’s fighting the downtrend here. There’s war
going on between the bid and ask with no clear short-term favorite. So stay
away.
While we appear to have bottomed,
don’t become frustrated if the high-momentum stocks take months completing
bases. The great proliferation of breakouts on January 1991 came months after
the prior market bottom in October 1990.
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.