Bounce?
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.
The Nasdaq lapped slightly lower on
Monday’s open but quickly found its low.
It then rallied to its high in the next hour, chopped
around for most of the day and did manage come back to close fairly well (a).
I thought on Friday that we
were becoming oversold and were near potential reversals in the VIX and
the three-day average of the TRIN. On Monday, there were reversals in price and
those indicators. However, under ideal conditions, these signals would have come
in a more oversold market, and the indicators themselves would be reversing from
higher levels. For instance, a reversal from a 20-period high in the three-day
average TRIN tests out but not as well as a reversal from 30-period (or more)
high. Likewise, in the VIX, reversals from 10% or more above the 10-day moving
average (e.g. a CVR III) are more accurate in back testing than reversals that
occur near the 10-day moving average. I suppose what I’m trying to say is that I
would have preferred that Monday were to have been another down day followed by more powerful
reversal signals on Tuesday (or later).
So what do we
do? These reversal signals (a TRIN Reversal and a CVR I) suggests that we will bounce from these
levels, but I see no reason to bet the farm.
Therefore, nibble on the long side but respect your stops and profit targets.
Looking to potential setups,
Advanced Micro Devices
(
AMD |
Quote |
Chart |
News |
PowerRating), mentioned recently, still looks like it has
longer-term potential.
Cabot Microelectronics
(
CCMP |
Quote |
Chart |
News |
PowerRating), on the Pullbacks
Off Highs List, appears to have stabilized after Friday’s
“knockout” move. This suggests that its uptrend remains intact. Just
use caution here as this one is a little squirrelly.
Standard Pacific Corp.
(
SPF |
Quote |
Chart |
News |
PowerRating), also on the Pullbacks
Off Highs List, appears to be stabilizing after Friday’s sell off. This too
suggests that its uptrend remains intact.
On the short side, Alltel
(
AT |
Quote |
Chart |
News |
PowerRating), on the Proprietary
Implosion List, appears to be catching its breath (consolidating) before
making another stab lower.
Random Musings
Thanks for the positive emails regarding Friday’s commentary on
last summer’s VIX. “Those who ignore it are condemned to repeat it”
(Santayana).
Hey, how did an analyst who was recommending
GE as his number
one pick get on CNBC this evening? (joke flag is flying)
Best
of luck with your trading on Tuesday!
P.S. Reminder:
Protective stops on every trade!
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most of your book this weekend and agree with the comments from others that it
is fantastic….well written and illustrated and easy to follow…..”
Rick W.
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