Deja Vu All Over Again
On Tuesday, the Nasdaq gapped lower but quickly reversed
and began to rally fairly sharply. However, it was unable to hold its
gains. It then chopped mostly sideways and lower for majority of the day.
Finally, it rallied once
again late in the day but sold off going into the close.
The S&P was also choppy but ended much lower.
So what do we do? It’s sort of deju vu all over again
(thanks, Yogi): The “even more” oversold
nature of the market combined with recent buy signals suggests that we are
getting closer to a bounce. Therefore, for the aggressive only (e.g., daytraders),
look to play a reversal in the index shares. On the long side, look to play
stocks such as the golds which are a) in general uptrends and b) can trade
contra to the overall market. On the short
side, once again, I think I’d avoid initiating any new positions and concentrate on managing
the ones you already have.
Looking to potential setups, as mentioned above, the
gold stocks
(
$XAU.X |
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PowerRating) remain in a general uptrend.
Considering the above, Goldcorp
(
GG |
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PowerRating) looks like it has
the potential to resume its uptrend out of a pullback.
Golden West Financial
(
GDW |
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PowerRating)
( mentioned Friday), still looks poised to continue its downtrend out of a Bow Tie.
However, as mentioned above, use caution establishing shorts in such an oversold
environment.
Keep On Smoking
As promised, tonight I will discuss trailing stops, using Varian Semiconductor
(
VSEA |
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PowerRating), a stock mentioned recently, as an example. In general, for stocks
more than $30 per share, I use a 2-point trailing stop. For stocks less than $30
per share, I generally use a 1 1/2-point trailing stop. For those less than $20,
I generally use a 1 to 1 1/2 point stop. I also take into consideration the
volatility of the stock and how far away the closing price is from the
2-to-3 bar high/low (or recent support/resistance). Therefore, for purposes of this example, let’s assume that the
trailing stop is at a 2-bar high. For more on money management, see my
articles under TM University.
Depending on Isidore
I may be out over the next few days depending on the track/damage from Isidore. Don’t do anything stupid without me. In return, after
tonight (I have to haul ass down to the harbor to tie things up), I promise to
stay off my sailboat for a few days (good advice, Dennis).
Best of luck with
your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“Your trading method is the best overall method that I have found in all the trading books that I’ve
read……..I actively mentor junior traders using your method…..”
Rick DiGiovanni
RedWood Trading, LLC
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