More On How To Play An Overbought Market

June 3, 2003
Dave Landry

On Tuesday, the Nasdaq started soft but found its low
fairly quickly and began to rally. Then after a deep early morning pullback, it
resumed its rally. It found its high by mid-day and began to sell off. However,
it reversed in early afternoon trading and rallied into the close. This action
has it closingÂ at new highs for the year.

The S&P was a little more wide-and-loose but did also
manage to close at new highs for the year too.Â

So what do we do? Well, it seems that all we can get lately
is an intra-day correction and nothing more. This is usually the time I receive
emails telling me it doesn’t matter that the market is overbought and that
intra-day pullbacks should be bought. And, I have to admit, the thought of
“throwing in the towel” and partying like its 1999 has crossed my
mind. Naaa, I think I’ll keep emotions in check. I see no reason to change the
general game plan. Continue to trail stops on existing longs and take some
profits. As far as new longs, you might want to continue to focus on those
issues that can trade contra to the indices (e.g. energy stocks). If you should
venture outside of such issues, make sure you are trading stocks that have
already made decent corrections such as the semis–but please, don’t bet the
farm here. On the short side, continue to watch for an opportunity in the index
shares, especially if you are still very long (i.e. use them as a hedge).

Looking to potential setups, Intersil Holding
(
ISIL |
Quote |
Chart |
News |
PowerRating),
in the aforementioned semis, looks like it has the potential to resume its accelerating uptrend out of a
Trend Knockout.