Beating A Dead Horse
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.
On
Monday, the Nasdaq gapped lower (a) and began to sell off. It did mount a decent
rally by mid-day but this gave way to late-day selling. This suggests that no one wanted to take
stocks home. This action has it closing on its low (b).
For those
keeping score, this is the lowest close since November of 1998.
On Friday night, I pointed to
the fact that the VIX was nowhere near the levels that one would see during a
panic sell off. This suggested that we had further downside. When I look at the VIX
today (Monday), I see that it has spiked higher. This suggests that we are
now closer to a panic market bottom. Also, this action sets up a CVR III buy
signal, which, as you know, is a “get ready” signal (vs. a signal in
and of itself).
The level of pessimism was the
highest that I’ve seen since this thing began nearly a year ago. The media
announced that the S&P is now officially in a bear market. Guess I’d better
run out and sell all my stocks that I’ve been holding for the last 10 years. My
point? Now that everyone is throwing in the towel, we’re probably getting close
to a near-term bottom. This doesn’t matter though, you already know how I will
play it. I’ll look to short the market after it bounces from lows, and maybe,
just maybe, I’ll be wrong this time.
Speaking of trend-following.
I guess I’ve been beating the
“moron-trend-following” dead horse a little too much. I just wanted to
drive the point home. In case you missed the point, here it is: “Surprises often happen in the direction of
the trend.”* And, as a momentum swing trader, I take this one step further: Surprises
usually happen in the direction of the trend over several days. So,
moron or not, I trade in the direction determined by my six-year-old analysts.
After all, if I were smart, I’d probably be someone other than a trader/money
manager.
So what do we do? Now that oversold has become way
oversold, it’s too late to even think about short positions. However, there’s no
guarantee of a bounce either. Therefore, I’d continue to trail stops and take
profits on any short positions established over the last week. And I’d tread
lightly on new positions until the market sets up again.
If you do establish new positions, look for potential
longs that are oversold and potential shorts that are relatively
overbought.
After a sharp drop from its recently highs, Electronics For
Imaging
(
EFII |
Quote |
Chart |
News |
PowerRating), on the Pullbacks
Off Highs List, appears to have stabilized in the area of its recent
breakout. This suggests that it might have one more stab to its recent highs
left in it.
Vitesse Semiconductor
(
VTSS |
Quote |
Chart |
News |
PowerRating), mentioned recently,
still looks like it has the potential to break down out of loosely formed
inverted cup and handle.
..or, if you prefer, a pullback
from lows:
Best
of luck with your trading on Tuesday!
P.S. Reminder:
Protective stops on every trade!
*Jeff Cooper
“...What
impressed me about the book is your focus on risk control….”
Larry W.
No risk, 30-day, money
back guarantee.