Choppy Corrective Action
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.
For some insight about how to set protective
stops, trailing tops, and money management for stocks mentioned in this column,
see my latest article Walking Through Trades From My Stock Outlook.
On
Monday, the Nasdaq sold off early and found its low but quickly rallied to its
high. The rest of the day it just chopped around.
I
don’t see a whole lot of meaning in Monday’s action other than it leaves Friday
as a pivot high and helps to walk off an overbought condition with more sideways
trading around the fifty.
So what do we do? I think there’s still room for a short or
two while the Nasdaq corrects. There are a few stocks setting up on the
long side in the wireless sector. Otherwise, there’s not much to write home about.
Leap Wireless
(
LWIN |
Quote |
Chart |
News |
PowerRating), on the Pullbacks
Off Highs List, looks poised to rally out of a Bow
Tie (a), its first pullback since rallying from lows. Just don’t overstay your
welcome here because there is longer-term overhead resistance.
Millicom International
Cellular
(
MICC |
Quote |
Chart |
News |
PowerRating), also on the Pullbacks
Off Highs List, is a similar pattern.
On the short side,
Consolidated Edison
(
ED |
Quote |
Chart |
News |
PowerRating) in the weak “utes”
(
$UTY.X |
Quote |
Chart |
News |
PowerRating) and on
the Pullbacks
Off Lows List, appears to be stalling out near
the area of its last breakdown.
Although Quest
Diagnostics
(
DGX |
Quote |
Chart |
News |
PowerRating) was up on Monday, it looks like its in trouble from a big
picture perspective.
Looking Ahead
Tol Brothers
(
TOL |
Quote |
Chart |
News |
PowerRating)
appears to be melting down from a top. This stock may be worth watching for the
first pullback.
More Money Management Musings
Last Wednesday, I mentioned Aflac
(
AFL |
Quote |
Chart |
News |
PowerRating) as
a potential short. After triggering on Thursday, it made a large wide-range bar
move lower (the largest range in years) on Friday (a). As I discussed Friday night, on
such parabolic moves you
should “lock in a piece, if not the majority, of your profits.” Monday
completes this example. This stock gaps sharply higher on the open (b) and closed well (c). As you can see, windfall profits are often short
lived and must be locked in. Why are they short lived?
Because large moves occur as players dog pile onto a market as it
becomes obvious to the masses. You’ve got to ask yourself, once it’s obvious,
and the last players are entering the market, who’s left?
Best
of luck with your trading on Tuesday!
P.S. Reminder:
Protective stops on every trade!
“…Got
your book a couple days ago and have devoured it. Great stuff! You should
be very proud of all the fine work you put in it. It may just become the Bible
for Swing Traders, like Hit and Run is for Day traders. The psychological
section is priceless and a great laugh because I see myself and many people I
know who’ve committed the same errors.”
Richard
L.
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