Hope And $2

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 opened flat based on pre-session
Globex futures selling off (after being up nicely). Not much action after that.
It chopped within a narrow range for most of the day.

The fact that the Nasdaq was unable to clear the top of its
recent range is somewhat concerning.

The S&P also wasn’t able to
show any meaningful follow through.

So what do we do? This is the time where you can’t get
greedy. Since we’ve had a few setups that have followed through as of late,
now’s the time to lock in partial profits and tighten stops. I’m hoping for
follow through, but as you know, hope and $2 won’t even get you on the bus. So,
I’d remain cautious just in case we don’t break through on the Naz or follow
through in the Ps (S&Ps).

With everything getting a little extended, there’s not too
much to look at tonight. Therefore, you might just want to focus on what you
already own. Below are two that are quasi-interesting.

Activision (ATVI)
(anyone remember Atari?), on the Pullbacks
Off Highs List, looks like has the potential to rally out of a
pullback/high-level double bottom.

Cymer (CYMI),
on the Pullbacks
Off Highs List, appears to be finding support around 30. This suggests that
it has the potential to rally out of a big picture cup and handle-like pattern.

Walk Through

As promised, here’s an example of how a recent setup could
have been played. As you know, a trade involves waiting for an entry, placing an
initial protective stop, taking partial profits and trailing stops. Using RF
Microdevices (RFMD),
an entry is triggered at 29.10 (a) when it takes out (trades above) the prior
day’s high. An initial protective stop is placed below the low of the setup (b)
for a risk of 2.30 points*. This gives us an initial profit target of 31.40 (the
entry 29.10 + risk 2.30). This target is hit on the following day and we exit
half of our shares (c). We immediately move our protective stop to
breakeven–the same as our original entry (a). Now, here’s were discretion comes
in. The stock fails to take out the prior highs decisively (d). At this juncture
(a potential double top) you might want to lock in profits on some of the
remaining shares. At the least, you should tighten you stop further, say to the
low price bar (e), just in case it fails to break through.

We’ll see how the trade
continues to unfold over the next few days.

Best of luck with your trading
on Friday!

Dave
Landry

P.S. Reminder: Protective stops on every trade!

*I tend to be more lenient and use a somewhat looser stop
(than my 5% max that I wrote about in the book) in lower priced stocks if the
logical stop point (in this case the low of the setup) is within reason. See my
recent article The
Myth Of Tight Stops for more details here.

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overall one of the best trading books ….. and I have read a lot of them. You
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