Blue Arrows, Six-year Olds And TFMs
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
Tuesday, the Nasdaq gapped lower on the open and continued lower. Then after a
brief mid-day pullback, it resumed its downtrend. This action has it closing
poorly, at lows not seen since October of 1998 and of course, continuing in the
direction of the big blue arrow.
This brings us
even closer to the next support level, circa 1500.
I heard an
interesting statistic* on CNBC today. In order for this index to surpass its 2000
high, it would have to rally over 300%–a feat which often takes markets years
to accomplish.
Obviously, you don’t need
evidence that we’re oversold in here but here it goes anyway: The three-day
average NYSE TRIN is approaching highs not seen the last S&P low, the
VIX is closing in on panic levels and the McClellan Oscillator is oversold.
So what do we do? This is where I give my damned if
you do and damned if you don’t speech. If you try to short an oversold market,
it’ll bounce. If you try to go long, it’ll continue lower. So with that said,
make sure you tread lightly no matter what side you trade.
Looking to potential setups, on the short side, you may
want to look at stocks that have been outperforming the market recently on a relative
basis but are still in longer-term downtrends. Drugs
(
$DRG.X |
Quote |
Chart |
News |
PowerRating), healthcare
(
$HCX.X |
Quote |
Chart |
News |
PowerRating), insurance
(
$IUX.X |
Quote |
Chart |
News |
PowerRating) and financials
(
$SPF.X |
Quote |
Chart |
News |
PowerRating)
fit this bill.
The Financial Select Sector
(
XLF |
Quote |
Chart |
News |
PowerRating) appears to be
stalling out in its sharp rally from lows.
Dow Jones & Co.
(
DJ |
Quote |
Chart |
News |
PowerRating), on the Pullbacks
Off Lows List, also appears to be stalling out and reversing from its
rally from lows.
On the long side, believe it or not, there are a few
stocks in uptrends that have pulled back. Just remember that you are fighting
the overall market trend. Also, the market is a perverse creature.
Sometimes, it plays “catch up” to those stocks that have been doing
well.
Considering the above, Electronic Arts
(
ERTS |
Quote |
Chart |
News |
PowerRating), on the Pullbacks
Off Highs List, looks poised to rally out of the high level bas it has
pulled back into.
Ashland Coal
(
ACI |
Quote |
Chart |
News |
PowerRating),
probably the strongest trending stock in the entire market, has formed a simple
four-bar pullback.
Random Thoughts
Recently, someone told me that
he doesn’t read me every day
because I “often say the same thing.” This reminds me of the preacher
who gave the same sermon every week**. When approached by one of the church
members, he said that he was glad someone finally noticed. And, that he would
keep preaching the same thing until everyone “got it.”
Well it seems that not everyone is getting it. Today, my email inbox was full of emails asking me if this was the
bottom. This, in spite of
all my talk about six-year olds with the uncanny ability to determine trend, in
spite of those amazing blue arrows that point the direction of the market and
that fact that I plead guilty to being a trend
following moron.
At the risk of preaching,
number 1, I don’t know, number 2,
I don’t care, number 3, I’ll be wrong on the last pullback from lows but
hopefully through waiting for entries and strict money management, I won’t get
hurt too badly–at least not enough to give back all the other pullbacks played
on the way down.
Other
If you’re on the fence about Tony’s seminar,
listen to the interview he did with Larry Connors at www.tradingmarkets.com/tmworld.
In a word, wow! After he talked about “gamma scalping,” I couldn’t
wait to fire up my quote screens.
Gor-man, I checked out the Hot Topic website. I think sales
will be just fine. In fact, while I was there I picked up a Johnny Knoxville Jackass
T-shirt along with one from Korn and Tool***. My old ones were getting
pretty tattered.
Best
of luck with your trading on Wednesday!
P.S. Reminder:
Protective stops on every trade!
*”Statistics are worthless. 75% of all people know
that.”
Homer Simpson
**Source: Anthony Robbins.
***If you’re my age or older, you might have to
ask a 14-year old to explain who these people are.
“…….You have definitely developed some very clear and concise methodologies,
which can be used in the real world of trading….”
Randy B.
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