Overbought
On Tuesday, the Nasdaq lapped higher, and rallied for
a solid trend day higher.
Tuesday’s action negates the potential inverted cup and
handle that was forming (see Monday’s archive).
The S&P also put in an
impressive performance. The 1240 level and the 50-day moving average (which will
be there soon) continue to be support levels to watch.
The VIX continued to implode on
Tuesday. It’s now at its lowest level since last September. The QQQ VIX
(
$QQV.X |
Quote |
Chart |
News |
PowerRating)
(or if you prefer the Nasdaq 100 VIX
(
$QQV.X |
Quote |
Chart |
News |
PowerRating)) also dropped sharply and is
approaching major lows.
So what do we do? The market is overbought based on price,
advance/decline and low VIX readings. Don’t fight the tape, but be willing to
take profits in longs and have a short or two ready just in case. For the
nimble, you might consider a day trade (short) in the Q’s (or Spyders) if they
show signs of stalling.
Idexx Laboratories (IDXX),
mentioned recently, appears to be attempting to resume its strong uptrend.
On the short side, Long Drug Stores
(
LDG |
Quote |
Chart |
News |
PowerRating), mentioned
recently and on the Pullbacks
Off Lows List, still looks vulnerable.
Example Follow Up
On
Monday, I discussed the fact that you should look to take partial profits and
tighten stops as old highs are approached when trading pullbacks. To review,
Genesis Microchip
(
GNSS |
Quote |
Chart |
News |
PowerRating) stalled out and closed poorly (a) after attempting
to break through its old highs. On Tuesday, the stock continued lower (b) from its
reversal. As you can see, it’s important to lock in partial profits as old
highs are approached, as you never know if the stock will fail or break through.
For more on money management and position management, refer to my book or my
articles under Trader’s
Lessons.
Best of luck with
your trading on Wednesday!
P.S. Reminder: Protective stops on
every trade!
P.P.S. Thanks for filling in while I was away Duke! Nice job!
“…You
have some really great material in there and I appreciate the
knowledge that you shared. There are few books out there that
provide people with the tools that they really need in order to trade
but this is one of them..”
Nick P.
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