Constructive 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.
On
Friday, the Nasdaq gapped lower on the open (a) and quickly found its low, but made a decent comeback to close near its high (b).
So what do we do? Friday’s reversal created quite a few
“knockout” moves and sets up a few longs. I’m still cautious, but I’m
now a little more constructive about the long side. Not matter what, it’ll
likely be bumpy with the upcoming Fed meeting and the potential for more
negative news (companies will continue to get all the bad new out of the way
while they still have something to blame it on).
Looking to potential setups, Plug Power
(
PLUG |
Quote |
Chart |
News |
PowerRating), on
the Pullbacks
Off Highs List, appears to be finding support around 23. This suggests that
its uptrend remains intact.
Metasolv
(
MSLV |
Quote |
Chart |
News |
PowerRating), on the Trading
Where The Action Is List, sold off earlier in the day but reversed to close
well. This action may have shaken out the nervous longs and could clear the way
for the stock to trade higher. It also creates a big picture cup and
handle.
Synopsys
(
SNPS |
Quote |
Chart |
News |
PowerRating), on the Pullbacks
Off Highs List, looks poised to resume its uptrend out of a
“simple” three-bar pullback from highs.
Amkor
(
AMKR |
Quote |
Chart |
News |
PowerRating), on the same list, looks like it has the
potential to rally out of a cup and handle.
Centillium Communications
(
CTLM |
Quote |
Chart |
News |
PowerRating) is an interesting Bow
Tie.
Market Musings
As promised, here’s an explanation of the low
volatility situation I mentioned in Macromedia
(
MACR |
Quote |
Chart |
News |
PowerRating) on Thursday. Volatility tends to
be mean reverting. The easiest way to explain this concept is in a joke. If you
know someone who’s normally “mean” and he’s nice for a few days,
chances are he’ll revert back to being mean. Applying that concept to
volatility, periods where volatility is lower than normal are usually followed by
higher or more average (also known as the mean) levels. With that said, low volatility
situations suggest that a large move is at hand. The problem is, it doesn’t suggest
a direction. Therefore, I look for a trend and setups when analyzing these
situations. In MACR, being a pullback from lows, the logical play was to the
downside. To be honest, I was hoping for a large move today so I’d have a great
example tonight. Maybe we’ll get it on Monday.
Take Your Lumps
Genentech
(
DNA |
Quote |
Chart |
News |
PowerRating),
mentioned as a potential short Thursday night, triggered (a) on Friday but
reversed to take out the top of the pullback (b). If you played this, then
you should have been stopped out. Trading is an odds game, you have to
take your lumps. Always use a protective stop. It’s better to lose a battle than
the war.
Another Shot?
I’m often asked
how many times I will attempt to re-enter a pattern. I’ll try twice. After that
I find it psychologically debilitating. With that said, Genetech
(
DNA |
Quote |
Chart |
News |
PowerRating) still
looks like it has the potential to resume its downtrend. Just wait for follow
through to the downside.
Best
of luck with your trading on Monday!
P.S. Reminder:
Protective stops on every trade!
P.P.S. Enjoy your weekend! Go Saints! Oh, wait,
we didn’t make it this year. Superbowl in the Superdome next year! We can to do
the pre-game party at my house.
“Dave pours his heart and soul into this book. Right from the opening dedication you know this book is different from the rest. Whether a novice or a seasoned trader this book will simply make you better at what you do. Frankly it is
a bargain at twice it’s price.”
Dr. Alan W.
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