More On What To Do When Positions Move In Your Favor
Smoke ’em If You Got ’em
Energy stocks, mentioned recently (see column archives), VLO
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PowerRating), EOG
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PowerRating), and BR
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PowerRating) rallied nicely on Tuesday before giving
back quite of a bit of their intraday gains. When you are fortunate enough to have
stocks move nicely in your favor, make sure you take partial profits and trail a
stop higher. I’ll follow up on these examples over the next few days.
One again, as mentioned recently: If you’re new to momentum-based swing trading and would
like more information on the basics such as trend, entries, and money
management, email me and I’ll be happy to send you the primer section
from
my second book.
On Tuesday, the Nasdaq gapped lower and sold off hard in
early trading. It bounced around mid-day but resumed its sell off in early
afternoon trading. It did manage to rally late in the but sold off again going
into the close. This action puts it right at the bottom of its recent trading
range and it puts it below its 50-day and 200-day moving averages.
The S&P put in a similar performance but wasn’t hit
nearly as hard as the Naz. Nevertheless, this action breaks it down below its
recent trading range (a) and puts it below its 50-day moving average.
So what do we do? I would have much preferred
a breakout to the upside, but I suppose I should be grateful that the indices are
breaking out (or should I say down) of their ranges. Technology, like the Nasdaq itself, was hit especially hard. Even previously strong areas such as
Internet were decimated. So is it time to get short? Well, considering the
amount of overhead resistance (the entire recent trading range), it’s certainly
no time to get long. However, at the risk of being redundant, follow-through
will be key. If the indices continue to slide, then we will likely see a
plethora of shorts setting up on the first pullback. For, now, you might want to
start putting together your watch list. On the long side, stick with commodity
related issues that can trade independently of the indices. Be careful
though — some of these areas are getting quite extended (e.g. the energies). One
last point: since the indices are very oversold, we will likely see multiple
contra-trend (in this case) buy signals setting up soon. Aggressive traders may
look to anticipate these signals, especially if the indices gap sharply lower
on the open and then show early signs of reversing.
As far as setups, Quanex Corp.
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PowerRating), in the strong steel
& iron sub-sector, still looks like it has the potential to resume its
uptrend out of a pullback.
Best of luck with your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
P.P.S. My new 20-hour course is now shipping.
Click here to learn
more, or to order..