Cautiously Optimistic
It
was encouraging to see cooperation from the other Central Banks
yesterday cutting interest rates in light of the terrorist
attack. Still this does not mean we will see a quick and clean market
recovery. We will be very cautious on the actions we will take with
regard to trading. Breadth is important as well as the actions the
government will take with regard to the "War On Terrorism."
Also as we have stated
before in this column we must watch the overseas markets. For example
the Taiwanese stock market is poised to move higher as sentiment on
the market is very pessimistic, even before the terrorist attack. If
the global economies should pick up we could see a
rally in the market. We should continue to watch Taiwan because it is
strongly correlated with Semiconductors and has typically led the
group.
I was flipping through
charts and did come across a some stocks that looked interesting.
Student loan company USA Education (SLM)
looks poised to tests its highs made in mid August. (Oh ignore
the name of the stock
on the chart–
it
is
incorrect…as you can see).
On the short side,
Microtune (TUNE)
is forming a multi-week inverted cup. The company has been showing
some negative earnings growth over the past four quarters.
Once again the Semiconductor
HOLDRs
(SMH)
are forming a Haggerty Reverse Symmetrical Triangle on a weekly basis.
This could be a signal that a potential bottom is in the making;
watch
the action carefully through out the week.
Looking at some interesting
happenings, we have the CBOE Volatility Index at an extreme level
showing fear, the Dow rallied into the close after being down more
than 400 points, indicating a potential "panic bottom" as
was the talk on the floor. And the Semiconductor Index ($SOX.X)
is forming a Haggerty RST pattern which could indicate a potential
bottom.
Ironically, the iShares
Taiwan Index (EWT)
is also forming an RST pattern on a weekly basis. However, remember
that we would like to see a classic follow through day on high volume
and breadth to be positive to confirm all our "hypothesis."
A confluence of indicators pointing in the same direction is key,
until then be patient.
Remember that all securities
are risky. In any trade, you should always reduce your risk by
adjusting position size and placing open protective stops where
you will sell your long or cover your short in case the market turns
against you. For an introduction to combining price stops with
position sizing, see Loren’s lesson, Risky
Business.
Greg