Mixed Bag

  • December 19, 2001
  • Dave Landry

On Wednesday, the Nasdaq gapped lower and
immediately reversed. Then, after some mid-day drifting and chopping
around, it softened to end up just about where it started.

So far, the index remains above its 200-day
moving average and the top of its recent base. Looking ahead, it’s
important for this level (circa 1950) to hold.

 

The S&P was also choppy but managed to hold
onto its gains to close well.

 

So what do we do?
Wednesday leaves us with a mixed market. Overall, the market was
positive but technology, led by the semis, sagged. Therefore, continue
to focus on the long side but wait for entries, especially in tech.

Looking to potential
setups, Serena Software (SRNA),
mentioned recently (see below), still looks like it has the potential
to rally out of a deep pullback.

I never dreamed I
would ever recommend a home builder as a potential swing trade. I
suppose you should never say never. With that said, Beazer Homes (BZH)
looks like it has the potential to rally out of a high-level
"mini" base.

 

I Could Tell You,
But Then I’d Have To Kill You

I received a few
emails today asking me "how did I know that SRNA would gap lower
(a) and reverse (b)" (see archive
from Tuesday night). Well, I’d love to BS you and tell you I had some
secret formula, but the truth is it just looked like a stock in a
strong trend that looked poised to reverse back into the direction of
the trend.

 

Several of you also
asked me to explain this type of setup further. Here is an excerpt
from my article titled: Opening
Gaps- Trade ‘Em, Fade ‘Em, Or Ignore ‘Em under
Traders Lessons. For more information see the complete article.

"Suppose
a stock is in a strong trend and pulls back. If it gaps down on the
open (a) and then begins to rally (b), I may consider a day trade
where I buy the stock and put in a tight stop below the gap (a). If
the stock fails, I’m out at a small loss. If the stock continues, I
might get a ‘head
start‘
on a decent swing trade."

 

 

Best of luck with
your trading on Thursday!

 Dave
Landry

sentivetradingco@prodigy.net

P.S. Reminder: Protective stops on
every trade!

"…….Your
book is well written, concise, and laid out so that anyone with a
rudimentary background to a master’s level trading education could be
very successful. You have done a superb job! My hat is off to you Mr.
Landry!!!…."

Mathew M. 

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