Improving, But It’s Still August
On Wednesday, the Nasdaq opened higher but quickly found
its morning high and sold off. It then turned around and rallied for most of the
day but sold off early in the afternoon. Finally, it turned back up going into
the close. In other words, it was choppy but did manage to close well and finish
nicely higher.
The S&P put in a similar performance.
The VIX still remains stretched away from its 10-day moving
average but so far, the average is quickly catching up to it, as higher numbers
are dropped off and lower numbers are added in.
So what do we do? Although the indices were choppy, I’ll
have to score Wednesday as a positive. It keeps all of the indices above their
50-day moving averages. The VIX may just be adjusting to a lower volatility
level but should not be completely ignored. Further, the market remains
overbought based on price and average advance/decline readings. And, to quote
Joe Corona, “…it is August, and nothing is to be taken at face
value.” Therefore, continue to keep it light.
Looking to potential setups, biotech continues to perform
well. The AMEX Biotech Index
(
$BTK.X |
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PowerRating) appears to be rallying out of a cup
and handle.
Considering the above, Enzon
(
ENZN |
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News |
PowerRating), mentioned
forever, is now set up as a low volatility situation. Notice that the low
volatility readings (a) are confirmed by sideways price action (b). Watch for a
breakout here.
Scale ‘n Trail
Medicis Pharmaceutica
(
MRX |
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Chart |
News |
PowerRating), mentioned recently (a),
continues to move nicely in our favor. Remember, when blessed with such a nice
profit, make sure you lock in a piece. Further, also remember to trail a stop.
When trailing, take into consideration recent support, the volatility of the
stock, the price of the stock and recent lows. One of my favorite techniques is
to trail at 2-3-bar lows. In this particular case, the 2-bar low is more than
2-points away from the closing price. Therefore, let’s assume (for educational
purposes) that the trailing stop will be placed 2 points away from the closing
price (b).
Best of luck with
your trading on Thursday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!