Anthrax Schmanthrax

October 22, 2001
Dave Landry

On Monday, the Nasdaq started strong early and
then drifted and chopped. Then, late in the day, it mounted a decent
rally to close well.

The S&P put in a similar performance.

So what do we do?Â
Monday makes two positive days in a row. This is especially true when
you consider that the market shrugged off what appears to be the worst
Anthrax news so far. So, needless to say, once again, I’m encouraged
by the action. Since we are now at/close to the 50-day moving
averages, let’s see if the indices can get above them (and stabilize)
before we get too bullish.Â

Looking to potential setups, for those willing to
trade a more volatile stock (hint: trade fewer shares and use a looser
stop), Microsemi (MSCC)
looks poised to rally out of a pullback/cup and handle.

Smoke ’em If You Got ’em

On Friday, I mentioned XL Capital (XL)
as a potential pullback play. Notice that the entry, above Friday’s
high (a) was triggered. At this point, a protective stop should have
been placed at (b)–below the low of the setup. The stock then rallied
to an area equal to the initial risk (c) (a-b). At this point, half of
the shares could have been exited and the stop could have been moved
to breakeven–the same as the entry (a). This way, barring overnight
gaps, you have a profitable trade with the chance for a home run on
your remaining shares (through trailing stops). Connors’ has dubbed
this simple (yet effective!) money management technique
“2-for-1” Money Management. For more on money management,
see my articles under Traders
Lessons.

Example–Follow Up

Following
up on my recent volatility example. Notice that Imclone Systems (IMCL)
once again continued higher (a) as volatility continued to revert to
its mean (b). Like the example above, when blessed with such a
nice/quick profit, make sure you lock in a piece.Â