Here Are A Few Things You Need To Know About Trend

December 12, 2002
Dave Landry

On Thursday, the Nasdaq opened firmer and after chopping up
and down, sold off for the remainder of the morning. It then chopped and drifted
its way higher throughout the afternoon.

The S&P put in a similar performance.

So what do we do? Once again, I’m still seeing more
and more charts that appear to be rolling over (see notes on transitional
patterns below). This is especially true in areas of technology such as the
semis. Therefore, I still
think transitional shorts (e.g., First Thrusts, Bow Ties, Inverted Cup &
Handles, etc.) could offer the best opportunities.

Looking to potential setups, the semis and especially the semiconductor equipment
makers still look like they have the potential to resume their rollover
(see sector chart under trend discussion below). With that said, Varian Semiconductor
(
VSEA |
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PowerRating), mentioned Wednesday night, still looks like it has the potential to continue its
rollover out of a First Thrust.

Phases Of Trend: Are We At An Important Juncture?

In my video
I discussed what I view as the phases of trend. These include Trend Resumption,
Trend Acceleration and Trend Transition. Based on current market conditions, I
thought it would be timely to discuss Trend Transition.

As a momentum player, I don’t try to pick tops or bottoms.
However, I do pay attention to a shifts in trend and look to get long (or short)
on first pullbacks. This can often be a high reward to risk trade. If you
are right, you can be right big since you are catching a trend early. And,
in theory, the rewards can be virtually unlimited (at least on the upside). If you are wrong, your risk are
defined.

To understand transitions in trend, let’s study the recent leg up
from lows in the Nasdaq. Notice the sharp up thrust (a) followed by a
turn up (b) and “Bow Tie” in the moving averages as the index took off
from its October lows. Now, fast forward to today. Notice that we have a thrust
down (c) followed by the moving averages turning down (d). This action suggests
that the index has the potential to roll over.

This is more pronounced in the aforementioned semiconductor equipment
makers. Notice the sharp up thrust from lows (a) followed by a turn up (b) and
“Bow Tie” in the moving averages. Now notice the recent thrust down thrust down (c)
followed by the moving averages turning down (d).