Another Pullback Or The Start Of Something?
On Thursday, the Nasdaq opened flat and after an initial
rally, began to sell off. However, it quickly found its low and began to rally
sharply. Then after some mid-day consolidation-type action, it resumed its
rally. This action forms an outside-day reversal at new lows.
The S&P also rallied sharply after trading lower. This
action also forms an outside-day reversal at new lows.
So what do we do? Thursday’s rally suggests that the
bounce from oversold is now under way. However, based on the magnitude of the
move, I see no reason to play the bounce. If this is the “real deal,” then we will have plenty of time to get long on the first pullback (or
transitional setups such as Bow Ties, First Thrusts, etc.). For now, I think the
best thing to do is to start putting together a list of potential shorts to
watch. With that said, there are many sectors in serious downtrends that are
worth a look: banks, tobacco, insurance and the semiconductors, to name a few.
Looking to potential setups, auto parts is another sector
in a strong downtrend. Begin watching for opportunities in stocks in the sector
that are in strong downtrends such as Borg Warner Automotive
(
BWA |
Quote |
Chart |
News |
PowerRating).
Like A Box Of Chocolates
Lately, I have been discussing using a trailing stop on the
Software Holdrs
(
SWH |
Quote |
Chart |
News |
PowerRating), mentioned recently (see archives). I was discussing using
using either a 1.5 point stop or a 2-bar high. Coming into today, the stop
remained unchanged at 1.5 points away from Monday’s close. This area was hit on
Thursday (a). As you can see, you really didn’t get a whole bunch (at least on
this trailing stop, partial profits could have been taken based on Monday’s
low/close (b)). That’s trading: You’re never really sure what you’re going to
get. You have to hope for the best but protect yourself, just in case things
don’t work out.
Best of luck with
your trading on Friday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
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rudimentary background to a master’s level trading education could be very successful. You have done a superb job! My hat is off to you Mr. Landry!!!….”
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