Due For A Correction
On Friday, the Nasdaq lapped lower but reversed soon after
the opening. However, it quickly found its morning-high and began to sell
off again. Then, around mid-day, it gained footing and worked its way higher
throughout most of the rest of the day. It did give back some gains going into
the close but this wasn’t enough to keep it from closing well. Obviously, this
action keeps the index above its breakout levels.
The S&P chopped mostly higher but sold off to close
poorly and in the minus column going into the close. It now remains just above
its recent highs.
Looking to the weekly charts, it still looks like we are in
a longer-term downtrend.
The Nasdaq:
And, the S&P:
The VIX continued to stretch further away from its 10-day moving average
(a). Once again, this action has it at its lowest level since last June.
On Friday, I spoke with a hedge fund manager who watches
both fundamentals and technicals. He said that the first leg off lows is often
technical in nature (e.g., short covering). However, a second leg usually
requires some sort of fundamental backing.
So what do we do? The lack of further progress on Friday
combined with the the stretched VIX suggests that we remain due for a
correction. Therefore, continue to keep it light on the long side and continue
to keep an eye out for potential shorts in the weaker sectors such as HMOs and
hospitals. One last point, trading will likely be thin and choppy next week,
thanks to Thanksgiving.
No setups tonight. Should the market have an orderly
correction, we should see a plethora of setups in areas of technology such as
such as telecom, software, semis and Internet.
Best of luck with
your trading on Monday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
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