Going Against The Current
In general, it is
profitable to trade with the direction of the market. We can find
more buying opportunities when the market is strong, and short-selling
candidates will be easily found if the market is weak. Both the Dow and the Nasdaq
were selling off this morning, but Deere & Company (DE)
was displaying unusual strength. DE was upgraded to attractive from neutral
before the open by Bear Stearns, and from market outperform to recommended by Goldman Sachs as well. Needless to say, DE’s strong momentum under the
weak market conditions attracted both the long- and short-term buyers.
The chart below is a five-minute chart of DE. (The upper horizontal line is the
level of the recent high set on August 13, and the lower line indicates
yesterday’s high.)Â
The stock opened strong and
immediately the sellers stepped in. As you can see, selling was brief, and at
10:00 a.m., DE took out yesterday’s high. This was our first buy entry point.
Subsequently, DE formed a loose cup-and-handle pattern, and shortly after 2:40
p.m., the issue briefly traded above the August 13 high.Â
It pays off to look for stocks that trade against the market direction. But
again, it is always easier to make money if you trade with the current of the
market.Â