OK To Play With A Dead Cat?
On Thursday, the Nasdaq opened lower and sold off. It then
quickly reversed and began to trade higher. However, before you could shout
“rally,” it reversed to make new five-year lows. The good news is, it
reversed for real after tagging these lows. This action has it closing well and
suggests we are in bounce mode.
The S&P also reversed nicely after tagging multi-year
lows.
The VIX reversed after hitting its highest levels since
September 11th. More importantly is the fact that this reversal comes from a
“stretched” condition (measured as 10% or more away from its 10-day moving average and its low is greater
than that average). In other words, tonight we have a CVR-III Modified buy. This
system has shown to be 70% correct in predicting a reversal in the market (75%
on the long side) over the next three to seven days. No guarantee, just a probability
(and “statistics are worthless, 75% of all people know that.” Homer
Simpson).
So what do we do? The aforementioned VIX combined with a
TRIN Reversal buy signal plus an oversold market reversing from multi-year lows
suggests we are in buy mode. This does not mean you should run out and buy individual
issues. If you are nimble, play it with the index shares. On the short side,
continue to scale out of shorts and tighten stops. And, this might be a good
time to start putting together a list of stocks in strong downtrends that could
be worth shorting after this bounce.
Looking to potential setups, Electronic Data Systems
(
EDS |
Quote |
Chart |
News |
PowerRating), in the weak software:
information service sector, still looks poised to resume its meltdown out of a
Trend Pivot Pullback. Just wait for entries in light of the above.
Email Of The Day
Being a bear presents its difficulties. At cocktail parties, I can’t really talk about all the money we bears are making, as that upsets most of the other guests. At the country club, when stockbrokers blame this bear market on “those &*&(#$!! daytraders” — or
swing traders, if he knew or understood what we really do– I have to remain quiet, and remind myself that it’s only a game, and we are winning. Thanks for making my trading life more simple and profitable.
Gerald C.
Thanks!
Thanks to all who joined me in tonight’s (Thursday)
“TraderTalk.” I apologize for the technical difficulties that caused
a slow start. Over the next few days, I promise to address any un-answered
questions.
Best of luck with
your trading on Friday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“……A long overdue note to let you know I am re-reading your book for the third time; I have a library
full, but I keep returning to yours, because ultimately its the clarity and relative simplicity that appeals to me; And it has contributed to being more successful in my
trading. I am becoming more convinced every week that its more important to implement a
simple, but sound strategy in an accurate, disciplined way than to stuff my head with hundreds of different
strategies. These strategies might all have merit, but it causes information
overload and just muddies the water for me; anyway, thanks a lot, keep up the good
column;
Richard L.
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