How I Determine Trend
Last night’s use of the word “bull” seemed to
inflame a few of you bears out there. First, let me explain something. I don’t try to
outsmart the market. I believe in what I see. In general, I pay attention to the
last one-to-three month action when gauging the overall trend. I mostly “eyeball”
the charts. If the right side of the chart is significantly higher than the left, I slap a big blue UP arrow on it and call it an uptrend (my paint program defaults to blue). If the right side is
significantly lower than the left, then I slap a big blue DOWN arrow on it and call it a downtrend. If I’m not sure which way its headed, I simply don’t bother.
It’s not rocket science. In fact, if a six year old kid can’t tell you which direction a chart is headed, it’s probably not in a trend.
Now, if you look at the market itself, it has risen nicely off March lows. Most
sectors have also been up during this period too. These include (but not limited to) broker/dealer, homebuilders,
banks, energy, HMOs, software, Internet, and telecom (and to a lesser extent the
semiconductors). I’ve plotted a few of these below. Scroll down and you’ll see
what I mean.Â
My goal is to look for spots to enter these trends–usually
on a pullback or a pullback related pattern. This raises the question: “How I know that this pullback won’t be the last?”Â
I don’t. And let’s face it, no one does! This is what protective stops are for. If
IÂ get knocked out of the trade, I dust my self off and shout “Next!”.
Internet
Homebuilders.
Broker/dealer.
Telecom.
For more on my methodology, see Monday’s commentary
(06/16/2003).
Looking to the indices, on Tuesday, the Nasdaq chopped back
and forth in a fairly narrow range. It did manage to close at new highs for the
year though.
The S&P put in similar performance. It too was able to
close at new highs for the year.
So what do we do? Although the indices are stalling
a bit, the longer-term trend remains intact. This is further confirmed by
generally constructive action in those sectors mentioned above. Therefore, once again, continue to
focus on the long side. However, make sure you are honoring your protective
stops, trailing stops and taking partial profits on existing positions.
Looking to potential setups, Encana
(
ECA |
Quote |
Chart |
News |
PowerRating), mentioned
recently and in the strong independent oil & gas sub-sector, still looks like it has the
potential to rally out of a pullback. However, wait for an entry since it
finished down on Tuesday.
Icos
(
ICOS |
Quote |
Chart |
News |
PowerRating), mentioned Monday night and in the strong
drugs-“other” sub-sector,
still looks like it has the potential to resume its uptrend out of a
pullback.
Best of luck with your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“….. The best thing about Dave Landry on Swing Trading is that it is so easy to read and understand. Examples are numerous and the theme of money management – with concrete examples – is repeated throughout the entire book.
..”
Active Trader Magazine, February 2002
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