Heads Up–These Areas Could Be In Trouble
Trail ’em If You Got ’em
As I’ve mentioned in the past, money management–the use of protective stops, trailing stops, and profit taking–is crucial to your long-term success as a trader. A simple money management system is to take at least half of your profits when they are equal to or exceed your initial risk. You then move you protective stop on your remaining shares to breakeven. This way, barring overnight gaps, you have a “free” position that has the potential to turn into a homerun (through the use of trailing stops).
Let’s follow up on Interoil Corp. (IOC), mentioned recently. When we last left
off, we were discussing the fact that based on this stock’s price and volatility, a 2-point protective stop/trailing stop/initial profit target would be appropriate.
We also discussed the fact that the stock rallied to hit this initial profit
target and how the stop was then moved to breakeven on the remaining shares. This way, you have the potential to continue to participate in this stock should it
extend its rally.
Notice on Tuesday that the stock resumed its uptrend. The trailing stop was then
racheted higher–to two points below the closing price. I’ll continue to follow up on this one (good, bad or indifferent) over the next few weeks.
On Tuesday, the Nasdaq traded back-and-forth in a fairly
narrow range.
It remains below its 200-day
moving average.
Ditto for the S&P.
In the sectors, I’m concerned about the fact that some
areas are stalling short of their recent highs. This action is setting up
“Gatekeeper” (a pattern I co-created with Fibonacci expert Derrik Hobbs that identifies markets stalling near their .786
retracement–it sounds a lot more complex than it actually is—email me
if you need the rules). Areas showing this action included broker/dealer,
banks, selected financials, and biotech. It’s not the end of the world, but I
thought a “heads up” was in order. Why? Because this pattern can often
be a precursor to bigger picture bearish patterns such as head and shoulders
tops.
So what do we do? Tonight was one of those
nights where I tooled through my charts over and over again–trying to find
something worthwhile to trade. I even went as far to flip through all 239
sectors/sub-sectors that I follow just to make sure I wasn’t missing anything–I
didn’t. As I’ve preached in the past, this is usually a sign for me to stand
aside.
No setups tonight.
Best of luck with your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
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