Back To Support?
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On Wednesday, the Nasdaq opened flat, and
after a brief rally, began to sell off. It regained most of those
loses by early afternoon, but then drifted lower into the close.
It appears that the index is stalling out and may
re-test the 2100 level/50-day moving average.
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The S&P gave up
all of its prior day’s gains. This action suggests that it too will
return to its recent support level (1240)/50-day moving average.
So what do we do? It looks like we are in the
beginning of a sell off. The market might stop at the above support
levels, and give us an all clear soon. However, for now and for the
nimble, focusing on the short side seems like the logical play.
Therefore, continue to look for shorting opportunities in the major
indices via the Q’s (QQQ)
or Syders (SPY)).
Also, begin watching for stocks that may be rolling over. Use inverted
cup and handles, and transition patterns such as Bow Ties to find
setups here.
Looking to potential setups, Sanmina
(SANM)
looks poised to resume its breakdown out of a pattern in the spirit of
a Bow Tie.
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Integrated Device
Technology (IDTI)
looks poised to continue lower out of a Bow Tie/Inverted Cup and
handle.
Long Drug Stores (LDG),
mentioned recently, still looks vulnerable.
The Feel-Good
Test
The most painful
lesson for me, which unfortunately I occasionally have to re-learn, is
to stop or significantly reduce my trading after I encounter after a
winning streak. It seems that is soon as it gets “easy,“
it’s time for me to take a step back and observe.Â
Last night, I
received the following email:
Dave, finally we
disagree. I just find too many stocks looking too good chartwise. Yes,
the biotechs may near a top, but I don’t see stocks (especially those
in the S&P) overbought. The low VIX
reading is a red flag, but I’m beginning to feel comfortable staying
long overnight. Some stocks I follow almost seem as if they’re ready
to explode. As always I enjoy reading your column.
Michael Kornreich
Michael: These are the types of emails I receive
right before the market drops. Trading is not easy. As soon as you
feel good, excited and “comfortable,” it’s time to back off
a bit and re-examine the situation and wait for the next opportunity.
Take the feel-good test when trading. If it feels
too good, then proceed with caution.
Michael, thanks for sharing your thoughts and
allowing me to publish your email.
Best of luck with
your trading on Thursday!
P.S. Reminder: Protective stops on
every trade!
“…I
think you have put together a terrific resource to help swing traders.
I really appreciated your market analysis process….”
Rick
F.
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