Frogs, Fuzzy Math, And Six-Year-Olds
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.
On
Thursday, the Nasdaq lapped lower (a) and continued its downtrend in a choppy
fashion. This put it at a fresh 2-year-plus low (b). It
reversed sharply late in the day, rallying over 100 points from the low, closing
well, of course (c).
Initially, the
media were having a hard time explaining why the market rallied. This is good
because trends that come from nowhere tend
to continue.
The S&P 500 tagged its old
low (a) but reversed to close well (b). I’m sure the candle people
have a name for this, maybe a “tweezers bottom.” Whatever you call it,
it is positive, but how much remains to be seen.
So what do we do? I’m
encouraged by Thursday’s reversal but skeptical about recent market behavior.
It seems that as soon as you say “bounce” something comes along and
whacks the market. For example, shortly after the close I was discussing the
potential for bounce with a fellow trader. I assume he was long the S&P futures,
but it went this way :
My buddy: “#$%^&!, what
just happened to the S&P futures?”
DL: Oracle I think.
My buddy: “#$%^&!”
So, as you might be painfully aware,
we’ve been here before. Also, due to recent frustrations with the market, I’m
must again consult my six-year-olds: the trend remains
down. My gut tells me that this thing won’t be over until we get
a panicky sell off. O.K. So, look to play the bounce but nibble only
and wait patiently for the next round of shorts to set up.
Few set ups tonight, at least for my
style of trading (e.g. momentum/pullbacks).
Nevertheless, look
at Shaw Group
(
SGR |
Quote |
Chart |
News |
PowerRating), on the Pullbacks
Off Highs List, looks like it has the potential to rally out of a two-step
pullback.
On Frogs And Fuzzy
Math
It appears that I was using some fuzzy math
last night when I commented that if the NASDAQ lost 2% a day and that it would be
at zero in about 50 days. It’s like a frog who jumps half the distance of the
room on each jump. He’ll never reach the other side. With that said, the NASDAQ,
losing two percent each day, would be at about 800 points 50 days from now.
Obviously, the commentary should have read: if it continues to lose 50 points
per day, it would be at zero in about 40 days.
Best
of luck with your trading on Friday!
P.S. Reminder:
Protective stops on every trade!
“..Read
your book. Outlined it. Think its great…………..”
Steve
W.
No risk, 30-day, money
back guarantee.