A Bear In Bull’s Clothes
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.
For some insight on how to set protective
stops, trailing tops, and how to use money management for the stocks mentioned in this column,
see my latest article Walking Through Trades From My Stock Outlook.
On
Tuesday, the Nasdaq acted like a market acts in a bull market. It sold off
early in
the morning (a) and rallied the rest of the day to closed well (b). And like a
bull, it even ignored bad news along the way.
It seems that there were quite a few analysts giving the
“all clear” today. Me? I dunno. I sort of feel like “the
Wolf” in Pulp Fiction: “Let’s not start kissing each other just
yet” (I think that’s what he said). I have to
admit, Tuesday’s strength was surprising.
Forgetting about what I think, the good news
is that several stocks are
beginning to set up as first pullbacks and some of these are actually starting
to follow through (see the LWIN example below). On the other hand, I’m still
seeing enough momentum to the downside to consider shorts. I guess what I’m
trying to say is that the market looks like its in transition mode. In this
environment, you can probably continue to play both sides.
Speaking of transition, you’ve probably noticed that
I’ve been showing quite a few Bow
Ties on the long side. This is because this is my favorite
“transition” pattern.
Take a look at Digital Lightwave
(
DIGL |
Quote |
Chart |
News |
PowerRating) and 724
Solutions
(
SVNX |
Quote |
Chart |
News |
PowerRating). Both look poised to rally out of Bow Ties.
Lam Research
(
LRCX |
Quote |
Chart |
News |
PowerRating), on the Pullbacks
Off Highs List, is in its first pullback since nearly doubling
from its lows.
On the short side,
Entergy Corp.
(
ETR |
Quote |
Chart |
News |
PowerRating), mentioned recently and on
the Pullbacks
Off Lows List, appears to be stalling out after
a sharp rally from lows. I’ve dubbed these deep pullbacks “Snapbacks”
as the market often makes a snap back move in the direction of the
downtrend. If you’re looking for more of setups like these in the
“utes” (not to be confused with the two utes in My Cousin Vinny) throw
a dart at rest of the stocks in this sector (utilities
(
$UTY.X |
Quote |
Chart |
News |
PowerRating)) on the
list.
More Money Management Musings
Leap Wireless
(
LWIN |
Quote |
Chart |
News |
PowerRating), mentioned Monday
night as a first pullback/Bow
Tie, triggered (a) at 38 (trading 1/16 above the prior day’s high). A protective
stop was placed below the low of the setup (b) (which was also Monday’s low) for
a risk of 1 5/8. This gave us a profit target of 39 5/8 for half of our shares.
The stock trades at 39 5/8 and we exit half our shares (c). Then we move the
stop to breakeven–the same as our entry (a) on our remaining shares. Now we have
a shot at decent profits on these remaining shares with the risk, barring
overnight gaps, being a scratch trade.
No Tickie No
Tradie
One more example.
Notice that Millicom Cellular
(
MICC |
Quote |
Chart |
News |
PowerRating), mentioned Monday night, was down
sharply on Tuesday. The good news is that the trade was avoided because it never
traded above the prior day’s high (a). As you can see, by simply waiting for follow
through, a losing trade was avoided. With that said, the stock still may be
worth watching but only if it can follow through to the upside.
Best
of luck with your trading on Wednesday!
P.S. Reminder:
Protective stops on every trade!
“….. For me, the best part of the book was
the very simple concept of Trend Qualifiers. This concept is exquisite in its
elegance and simplicity. Well done !”
Tom F.
No risk, 30-day, money
back guarantee.