Don’t Fight The Tape
On Tuesday, the Nasdaq gapped higher generally
worked its way higher for most of the day. Then, after a late day sell
off, it mounted an impressive comeback rally. This action has it
closing well and at its highest level in months.
The S&P also put in a decent performance. It
too closed at its highest level in months.
So what do we do?
Even after the recent correction, the market was still slightly
overbought coming into Tuesday. Add today’s rally to that and we’re
definitely back in overbought territory. Does that mean that the
market can’t go higher? No. Overbought can often become more
overbought–especially in strong markets. Therefore, don’t fight the
tape. Focus on the long side,
but keep an eye our for shorts for when the market corrects.
Looking to potential setups, Transkaryotic
Therapies (TKTX),
in the strong biotech sector, looks like it has the potential to
resume its uptrend out of a deep pullback.
Although Boston Scientific (BSX)
(mentioned Monday night) triggered and reversed on Tuesday, it still
looks like it has the potential to resume its longer-term uptrend out
of a pullback.
Walk Through
On Friday (and repeated again on Monday), I
showed Network Associates (NETA)
as a Trend Knock Out (a). The stock triggered on Monday at 21 (b). A
protective stop is immediately placed below the low of the setup (a)
for a risk of 1.40. This gives us an initial profit target of 22.40.
The stock reached that point on Tuesday (c). At this point you can
exit half of your shares and move your stop on your remaining shares
to breakeven (d). For more on money and position management, see my
articles under Traders
Lessons..
Best of luck with
your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
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