Be A Lover!
Each evening we focus
on the most interesting aspects for the upcoming trading
day. The comments are based on observations of the nightly
updates of the Stocks/Sectors and Market Bias pages. They
are provided for educational purposes only and are not
intended to be direct trading advice. Also, keep in mind
that these remarks are made up to 12 hours in advance of the
markets opening. Therefore, overnight events may alter the
outcome of these observations.
face=”Arial, Helvetica”>Join me, fellow TradingMarkets.com
content providers, and other traders and money managers at
the Trading Markets 2000 conference at the Venetian Hotel
Resort and Casino in Las Vegas on October 13-15, 2000.
face=”Arial, Helvetica”>For a back-to-basics look at
retracement levels, see my latest trading lesson,
Introduction To Retracements.
Over
the past few days, I have spoken with traders who have
missed the 7% rise in the Nasdaq because they were bearish.
Worse than missing this move is the fact that some of these
traders shorted the Nasdaq 100
(
QQQ |
Quote |
Chart |
News |
PowerRating) and high-flying
stocks simply because they were overbought.
face=”Arial, Helvetica”>Don’t get me wrong: There’s nothing
wrong with being bearish. I, too, have been concerned
lately, based on the overbought nature of the market.
However, you have to believe and act on what you see. Leo
Melamed, in Melamed On The Markets, said it the best:
size=”2″ face=”Arial, Helvetica”>"How much better
and more fun it is to be a lover. A trader who is a lover is
a
trend player — the trend is his friend. He seeks out the
trend of the market and
romances it. He loves the market whether it is a bull or a
bear; he follows it
wherever it leads.
…the real difference between lovers and fighters is that
lovers never want to be right, they just want to make money.
In the long run,
only lovers do."
face=”Arial, Helvetica”>Looking to the markets, on Friday,
the Nasdaq gapped higher on a benign PPI report and began
sliding. It even threatened to go negative on the day.
However, it reversed and rallied to close well.
width=”470″ height=”320″>
Where
can we go? Obviously, we are overbought. However, as you
know, overbought can often become more overbought.
The 4,300-4,400 level on the Nasdaq Composite and the 4,100
level (a) on the Nasdaq 100 may provide resistance, as these
are roughly the 61.8% retracement levels of the
March-to-June sell-off. Nothing magic about these numbers.
The fact that they are being watched by some traders
suggests that it could become a become self-fulfilling
prophecy.
width=”470″ height=”320″>
So
what do we do? We’ll, you can’t fight momentum. However, you
might want to start looking for a few short candidates for
when — and only when! — we begin to correct
from these levels. My guess is that those who are sitting on
juicy profits may look to cash in early next week at the
first sign of weakness. One last point: When you look for
shorts, focus on those issues that are in established
downtrends versus trying to pick tops in high-fliers.
Looking
to potential setups, Thermo Electron
(
TMO |
Quote |
Chart |
News |
PowerRating), mentioned
Thursday and on the
From Highs List, still looks poised to resume its
uptrend.
width=”470″ height=”320″>
Continuing
on the pullback theme, Sepracor
(
SEPR |
Quote |
Chart |
News |
PowerRating), also on the
From Highs List, seems to have survived the pullback in
the biotechs
(
$BTK.X |
Quote |
Chart |
News |
PowerRating) and looks poised to continue
higher.
width=”470″ height=”320″>
For
you breakout players, Liberate Technologies
(
LBRT |
Quote |
Chart |
News |
PowerRating), on
the
60-Days Highs On Double Volume List, broke to new highs
on an expansion of range and volume out of a lengthy
low-level base.
On
the short side, Infospace
(
INSP |
Quote |
Chart |
News |
PowerRating) failed to rally with
the rest of technology on Friday and has formed an inverted
saucer-and-handle.
Best
of luck with your trading on Monday!
face=”Arial, Helvetica”>Dave Landry
P.S. Reminder:
Protective stops on every trade!