A Potential Warning Flag
Looking to the indices, on Monday, the Nasdaq gapped higher
and initially rallied but quickly found its high. Then, after giving back its
early morning gains, it essentially traded sideways for the rest of the day.
The S&P also found its high early. This action has is
closing poorly.
So what do we do? The fact that the indices
stabilized and actually closed well after tailing below their (well watched)
50-day moving averages on Friday was encouraging. On the other hand, I’m a
little concerned that we didn’t see any meaningful follow through (especially in
the S&P) on Monday. Further, I’m beginning to see quite a few transitional
shorts setting up. I suppose this is normal after a thrust down from new highs
followed by a bounce (i.e. the theory behind my First Thrust pattern). However,
I don’t think it should be completely ignored. Therefore, you might look to play
both sides and wait for entries to help keep you on the right side. On the long
side, stick with stronger sectors such as metals & mining and retail.
On the short side, focus on weaker areas such as biotech. For aggressive, you
might also want to consider areas that are showing mixed performance within such
as the semiconductors.
Looking to potential setups, Home Depot
(
HD |
Quote |
Chart |
News |
PowerRating), mentioned
recently and in the
strong retail–home improvement sub-sector(a), looks like it is attempting to
resume its uptrend out of a pullback.
Best of luck with your trading on Tuesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
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