An Interesting Way To Protect Yourself During Overbought Markets
On Monday, the Nasdaq opened lower and sold off hard in
early trading. Then, after drifting sideways, it sold off again in early
afternoon trading. Finally, it tried to bounce but resumed its sell off going
into the close. This action has it closing poorly.
The S&P put in a similar performance. This action puts
it back in the vicinity of its 50-day moving average.
So what do we do? As you know, it’s not wise to buy an
overbought market–you’re better off waiting for a correction (see below for
more details on this subject). Well, Monday certainly qualifies as a correction.
Therefore, you might want to begin looking for buying opportunities in those
sectors that have recently made sharp up thrusts from lows or meaningful
transitions. These include (but not limited to) retail, selected areas of
consumer non-durables and the semis. For the aggressive, you might look to play
the index shares provided of course, they show signs of reversing. Not matter
what you do, you might want to continue to keep it light as long as we
remain in news-driven environment.
Looking to potential setups, National Semiconductor
(
NSM |
Quote |
Chart |
News |
PowerRating), in the aforementioned semis, looks like it has the potential to
resume its up thrust from lows out of a Trend Knockout (TKO).
How To Use Your Butt Cheeks And Hands To Protect You During
Overbought Markets
On Friday, as mentioned in this column, the market was EXTREMELY
overbought. This was not only measured by price itself, but by other indicators
such as low average TRIN readings, short-term average advance/decline readings
and longer-term advance/decline readings (e.g., McClellan Oscillator).
So what’s one to do in this situation? The answer is simple*:
1. Place your left hand on your left butt cheek.
2. Place your right hand on your right butt cheek.
3. Sit down.
All joking aside, NEVER feel compelled to chase a market. I
can assure you, they ALWAYS correct.
FYI, my video
is now 10% off (the price, it’s still 100% intact).
Best of luck with your trading on Tuesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
*Feel free to enlist your significant other in
this activity. Explain to her/him that this is vitally important to your
finances.
“….your book is like an investing bible to me, and I thank you very much for writing in a simple straight forward style that even a novice like me can use….”
Thanks Much,
Cliff A.
