Keep It Light
On Wednesday, the Nasdaq opened lower and sold off.
However, it quickly found its low and generally worked its way higher throughout
the day. This action has it closing well and just below its 50- and 200-day
moving averages (not shown).
The S&P mounted an impressive rally, reversing
Tuesday’s sell off. This action puts it back above its 200-day moving average
and near longer-term resistance.
So what do we do? I hate these “melt ups” that
create a severely overbought market (see last night’s commentary for a list of
overbought indicators). If I cave in and buy, then the sell off comes. If I try
to short it, then the sell off never comes. Therefore, the best thing to do is
keep it light. On the long side, focus on those issues that have outperformed
the market long before the rally and have the ability to rally contra to the
indices (e.g., consumer non-durables). On the short side, focus on issues such as
Internet and software that really haven’t taken off with the rest of the
market. No matter what you do, just make sure you wait for entries and
honor your stops.
Looking to potential setups, Alberto-Culver
(
ACV |
Quote |
Chart |
News |
PowerRating), in
the strong aforementioned consumer non-durables, looks like it has the potential
to resume its strong uptrend out of a pullback.
Storage Technology
(
STK |
Quote |
Chart |
News |
PowerRating), mentioned last night and in the weak computer hardware/storage sector,
reversed intraday but still looks poised to resume its meltdown.
Best of luck with
your trading on Thursday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
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