Does Tuesday’s Action Change Everything?
Looking to the indices, on Tuesday, the Nasdaq opened
firmer but quickly found its high and began to trend lower. Then after some
mid-day waiting-on-the-Fed sideways trading, it resumed its sell off going into
the close. This action has it closing poorly and below its 50-day
moving average (the red line below).
The S&P put in a somewhat similar performance. This
action has it closing poorly and right at its recent breakout levels (support),
circa 1060.
So what do we do? The good news is, the
S&P held support. But, that’s about it. The sector action was disappointing
to say the least. Questionable sectors such as the semis were hit especially
hard. Other areas that have been vulnerable lately such as software, Internet,
computer hardware were also hit fairly hard. Stronger areas such as homebuilders
weren’t left unscathed either. Looks like I picked the wrong day to be bullish!
Considering the above, I suppose the best action would be to sit on your hands
until the market stabilizes. At the least, you probably want to stick with those
areas that can trade contra to the indices such as commodity related stocks. For
the aggressive, you might want to start watching for transitional (i.e. early
trend) shorts in those weaker areas mentioned above.
No setups tonight (Tuesday), if the market continues to
slide, we could see numerous transitional shorts setting up soon.
Best of luck with your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
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