More Overbought
Each evening we focus
on the most interesting aspects for the upcoming trading
day. The comments are based on observations of the nightly
updates of the Stocks/Sectors and Market Bias pages. They
are provided for educational purposes only and are not
intended to be direct trading advice. Also, keep in mind
that these remarks are made up to 12 hours in advance of the
markets opening. Therefore, overnight events may alter the
outcome of these observations.
On Monday, after a flat open, the Nasdaq was off to the
races. Then, after some mid-day drifting, it resumed its rally. By the close, it
had tacked on nearly 5%.
Monday’s action puts the Naz nicely above its recent
trading range.
So what do we do? Obviously, the overbought indictors
mentioned Friday (see archive) became more overbought on Monday. However, as you
know, overbought can become more overbought. And, more overbought can become even
more overbought. Therefore, don’t be a hero and step in front of the tape
(short) just because the market is overbought. On the other hand, there’s no
need to load the boat on the long side in here either. Therefore, tread lightly
and don’t chase breakouts–focus on those stocks that have pulled back.
Not too much to look at tonight. Continue to manage what
you still own and wait for the market to pull back.
Sigma Aldrich
(
SIAL |
Quote |
Chart |
News |
PowerRating), on the Pullbacks
Off Highs List, looks poised to rally out of a Running Cup and Handle1. Â
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On the short side, Cablevision
(
CVC |
Quote |
Chart |
News |
PowerRating), on the Pullbacks
Off Lows List, gave up all of Friday’s gains. This suggests that its
downtrend remains intact and that it is poised to challenge its recent lows.
Walk Through (cont.)
As you know, lately we have been walking through a position
in RF Micro Devices
(
RFMD |
Quote |
Chart |
News |
PowerRating). You might want to look at the recent archives
(on the right side of this page) before continuing. When we left off on Friday, we
had left our stop at (a) which was a two-bar low. On Monday, the stock rallied
nearly 8%. This is where discretion comes in again. This is the fifth day in the
position and, so far, its up over 25%. On such parabolic moves, there’s nothing
wrong with taking another piece or even all of your profits. For this example,
we’ll look to the technicals and continue to trail stops. Now that RFMD has
cleared its recent highs, there’s a chance that it could keep on going. It should
not come back in. Therefore, we will raise the trailing stop to below
Monday’s low (b). For general guidelines on how to enter and
manage positions, see my articles on Money
Management under Trading Lessons.
Other
As mentioned on Monday, there’s
a lot more to trading than just finding setups. You have to consider market
action, sector action and bigger-picture technical patterns within the stocks
themselves. For more information on this, see my latest article Beyond
The Setup. Shoot me an email an let me know what you think.
Best
of luck with your trading on Tuesday!Â
P.S. Reminder:
Protective stops on every trade!
1. The Trading Markets Guide To Conquering The
Markets, Mark Etzkorn–editor; Dave Landry On Swing Trading, Me
“…Recently
I made a smart decision and purchased your book. I was encouraged and
learned a great deal…..The most important chapter to me was how you prepare to
trade. The right mindset is as important as finding the setup…..(I’m in
the trading business with a good friend of mine)……. We are both relatively
youthful at 25 and have soaked your book into our daily routines. I thank
you for sharing your experiences and your tremendous insight. It is
individuals like yourself that help make my friend and I better traders as
well as hopeful of our potential in our careers….”Â
Thanks again.
John
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back guarantee.
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