Learn From These Three Examples
Smoke ’em If You Got ’em
Wednesday provided us with great money management examples
for the last three stocks mentioned in this column. First, Devon Energy
(
DVN |
Quote |
Chart |
News |
PowerRating), mentioned on 04/21/04, tailed higher before reversing to close poorly. This action had the stock
trading over 2-points higher (intra-day) from the entry. This is good place to take partial
profits for a stock of this price and volatility. The stop on the remaining
shares could then be moved to breakeven–the same as this entry. This way,
barring overnight gaps, it gives you, at worst, a breakeven trade and a chance of a homerun on the remaining
position.
Phelps Dodge
(
PD |
Quote |
Chart |
News |
PowerRating), mentioned on 04/23/04, gapped
sharply lower on the open before bouncing back a bit. When blessed with such a
strong opening in your favor, make sure you lock in partial profits on the euphoria (or in this case panic).Â
And finally, Newmont Mining
(
NEM |
Quote |
Chart |
News |
PowerRating), mentioned on
04/26/04,
gapped sharply lower on the open and finished even lower. In this case, taking partial
profits and trailing a stop could keep you in the game here too.Â
^next^
On Wednesday, the Nasdaq opened lower and continued to sell
off in
early trading. Then after trading sideways for much of mid-day, it
resumed its sell off going into the close. This action has it closing poorly, puts its well below its 50-day moving average,
and near the bottom of its recent trading range.Â
The March lows, circa 1900, which also corresponds with the
200-day moving average, could be a target to the downside here.Â
The S&P put in a similar performance. This action
also has it closing poorly, puts it back below its 50-day moving average, and
puts it near the bottom of its recent trading range.
The March lows, 1080, which also corresponds with its
200-day moving average, could be a target to the downside here.Â
So what do we do?  As a trend player, I’m
relieved that this market is finally trying to do something. Yes, I would much
rather it if it would break out to new highs. However, with the indices
trading below even more resistance, the aforementioned support levels may be an
easier target. Therefore, use caution on the long side. On the short side, if
you are not already positioned, you might wait to see if the market can follow
through by breaking down out of its trading range and then look to short the
first pullback.
As far as setups, Cypress Bioscience
(
CYPB |
Quote |
Chart |
News |
PowerRating), in the
strong biotechs (today notwithstanding), looks like it has the potential to
resume its uptrend out of a Trend Knockout. However, wait for follow through in
the stock (and the sector) since biotech, like the market itself, was hit hard
on Wednesday.
Random Thoughts
You’ll notice in my learning examples above that all three
stocks are commodity related. When indices lack clear direction, commodity
related stocks are often a good place to look for opportunities since they can
trade independently of the indices.Â
Best of luck with your trading on Thursday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
P.P.S. Now is a good time to get my newest 20-hour CD-ROM course, Dave Landry: The Mentoring Sessions. It’s 20% off for a limited time at TradingMarkets.com. Just
click here to learn
more, or to order.