Dip Your Toe In?

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.

Wednesday, the Nasdaq open flat and after some chopping around, began to rally.
However, it found its high mid-day, near the 1700 level, before resuming its downtrend.

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Obviously, oversold became more
oversold on Wednesday. This, combined with the fact that internals improved
drastically, the S&P appears to have stabilized (at least temporarily) above
its recent lows, the fact that TRIN (and averages of the TRIN) reversed and the
fact that the Vix appears to be stalling out near panicky levels suggests we
could see a bounce in here.

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So what do we do? Use extreme caution at this
juncture. Although the indicators suggest the potential for a
bounce, the big blue arrow is still pointing down. You best bet is probably to
manage existing short positions (i.e. trail stops and lock in partial profits).
For the nimble, you might dip your toe in on the long side–just remember that
you are swimming against the tide.

Looking to potential setups, there’s not much to look at
tonight. Most of the stocks on the short side are now oversold. It’s probably
best to wait for the market bounce before trying to get short again.

Considering the above, Advanced Paradigm
Quote |
Chart |
News |
, on the Proprietary
Momentum List,
is consolidating after its recent base breakout and looks
poised to break higher.

Ashland Coal
Quote |
Chart |
News |
mentioned Tuesday night, still looks interesting to me.

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No Tickee No Tradee Award

Today’s “no tickee, no tradee” award goes to
Electronic Arts
Quote |
Chart |
News |
, a stock mentioned Tuesday night. Notice the
stock was creamed on Wednesday but never came close to a potential entry level
(a). As you can see, simple rules such as waiting for an entry can often keep
you out of a bad trade. Wait for follow through.

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Your Equity Does Not Lie

I continue to receive emails
from traders that are struggling. One trader told me he “recently had 17
losses in a row.”

How do you prevent this from
happening? The answer is simple: Plot your equity.

value of your trading account does not lie……..if your equity curve is
trending steadily higher, then you are doing something right and/or market
conditions are favorable. On the other hand, if your equity curve is trending
lower, then you are doing something wrong and/or market conditions are
unfavorable. Stop trading and reevaluate the situation with a clear head. The
name of the game is long-term survival. The markets will always be there.

I know
several traders who know very little about market timing, yet are always out of
the markets when conditions are at their worst. How? They stop trading after a
string of losses, wait for better times and then slowly ease back in.*”

of luck with your trading on Thursday!

Dave Landry

P.S. Reminder:
Protective stops on every trade!

*Source: Dave Landry On Swing Trading (a book I
highly recommend!)

“……Don’t let the simplicity of Dave’s methodology fool you. There’s genius in the

John F.

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