How To Play An Overbought Market
Smoke ‘Em If You Got ‘Em
Jet Blue
(
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PowerRating), mentioned recently as a potential
First Thrust short, has moved nicely lower since then (a). When blessed with
such a nice quick profit, make sure you lock in a piece and move your stop on
your remainder to breakeven. This way, barring overnight gaps, you position
yourself for a potential homerun on those shares.
Looking to the indices, on Monday, the Nasdaq open firmer
and after a brief dip, began to rally sharply. It found its morning high fairly
quickly and then generally worked it way sideways to higher for the
remainder of the day. This action has it closing well, closing at new highs for
the year, and just shy of taking out its old highs.
The S&P put in a similar performance. This action puts
it at new highs for the year.
So what do we do? The S&P has broken out
to new highs and the Nasdaq is not far behind. Further, there are some very
strong uptrends across many stocks/sectors. However, the market is overbought at
these levels. Although, overbought can always become more overbought, I don’t
think its prudent to initiate new positions (longs) at these levels. If the
breakout in the S&P sticks, then we will see numerous setups on the first
pullback. For now, on the long side, manage existing positions (trail stops and
take partial profits) and stay with issues that can contra to the indices such
as commodity related stocks. On the short side, you might want to continue to
watch for transitional setups. Wait for entries though, since the tape remains
so strong.
Best of luck with your trading on Tuesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
P.P.S. Learn my best swing
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