Not Even Martha
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
market’s opening. Therefore, overnight events may alter the
outcome of these observations.
On
Friday, the Nasdaq lapped lower (a) and sold off. It stabilized by mid-morning
and was able to retrace about 50% of its losses. However, the selling resumed
late in the day and the index closed on its low (b).
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The reversal of the reversal (Wednesday,
Thursday, Friday)Â is disappointing. Anyone who didn’t bail out over the
last few days now has a long weekend to think about the “chance” they
missed on Thursday.Â
Not even Martha Stewart could look at this
market and say “It’s a good thing.” The Nasdaq is now below the
200-day moving average. The Nasdaq 100, which represents less of the
“funny money” stocks and more of the “real” companies, was
hit even harder. It lost 3.5% of its value. And the
S&P is now sitting right around the 1490 support (a)–next support, the
200-day moving average?
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Obviously, all those great pullback patterns
that set up on Thursday didn’t work on Friday. This is the nature of the beast.
Speaking of setups, today, someone asked me a
very timely and valid question: “When playing pullbacks and swing trade
setups, how do you know they are going to work?” My answer:
You don’t. You have to wait for your entries and set your protective stops.
Friday was a prime example of what can go wrong as many stocks rallied just
enough to get that entry before turning around to stop you out. This can be
aggravating to say the least.* But hopefully, by controlling risk, you’ll live
to trade another day. One last point, if you find yourself getting stopped
out early on (on longs), you might want to take a step back to see if the
overall market improves–especially on down Fridays when afternoon drift often
leads to pre-weekend continuation moves lower.Â
So what do we do? I’d tread lightly
until the situation improves.
face=”Arial, Helvetica”>Looking to potential setups, Quest Diagnostics
(
DGX |
Quote |
Chart |
News |
PowerRating),
on the Pullbacks
Off Highs List, is a three-bar pullback of a stock in a strong uptrend.
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Cell
Therapeutics
(
CTIC |
Quote |
Chart |
News |
PowerRating), also on the Pullbacks
Off Highs List, appears to be attempting to rally out of a deep correction.
Netro
Corp.
(
NTRO |
Quote |
Chart |
News |
PowerRating), on the Explosions
List, looks like it has the potential to rally out of a cup and handle. Wait
for follow-through to the upside here as this stock might get lumped in with the
rest of the telecoms
(
$XTC.X |
Quote |
Chart |
News |
PowerRating).
Goto.com
(
GOTO |
Quote |
Chart |
News |
PowerRating), on the Trading
Where The Action Is List, is in its first pullback since rallying off of a
big picture bottom.
Best
of luck with your trading on Monday!
face=”Arial, Helvetica”>Dave Landry
P.S. Reminder:
Protective stops on every trade!
*”Looks like I picked the wrong
day to stop sniffing glue.” Remember that movie?