Home | Stocks | Trading Lessons | A Big Pile of Heads

A Big Pile of Heads

  • July 27, 2000
  • Eddie Kwong

There’s an old expression that traders have been known
to say when they get overconfident in their trading and suffer heavy losses
due to their overexposure. 

I got my head handed to me.

On Thursday, the market is handing out a lot of heads in more ways than one.

In July 25, 2000’s Chart of the Day, I pointed out how the Biotech HLDRS was
breaking down from a head-and-shoulders top. 

As you might expect, there are a good number of stocks within the
biotech group that are themselves in the midst of forming or breaking down from
head-and-shoulders tops. Names include
(
MLNM |
Quote |
Chart |
News |
PowerRating),
(
GENE |
Quote |
Chart |
News |
PowerRating),
(
CEGE |
Quote |
Chart |
News |
PowerRating),
(
GERN |
Quote |
Chart |
News |
PowerRating),
and
(
IMNX |
Quote |
Chart |
News |
PowerRating).

But the heads are rolling in other sectors, too. Broadcom
(
BRCM |
Quote |
Chart |
News |
PowerRating)
appears to be in the process of forming a right shoulder.

Same for Apple Computer
(
AAPL |
Quote |
Chart |
News |
PowerRating).

TriQuint is dropping off its right shoulder… 

. . .as is the case for Nvidia
(
NVDA |
Quote |
Chart |
News |
PowerRating).

There’s something very important to be learned from this. I’ve
seen it time and time again whenever the market reaches a major transitional
phase. What you will often see happen at a major market top or bottom is the occurrence
of similar patterns across many stocks and sectors. When I say “similar
patterns,” I mean they’re all in agreement with each other. . .they’re
saying the same thing. 

I saw this happen during the course of the February and March
highs in the Nasdaq. And I’m seeing it again now. This doesn’t mean that we’re
going to see a crash or even a major leg to the downside. The way some analysts
and financial journalists would draw this conclusion on behalf of the huddled
masses is downright irresponsible. 

As a trader, I simply
can’t do that. But what I can say is “here’s a possibility to keep in the back of your mind.” Keep your mind focused on the current pattern setups and act accordingly.

Don’t try
to predict the future.

See you tomorrow,

Eddie