Overbought

May 2, 2001
Dave Landry

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 Wednesday, the Nasdaq gapped higher on the open and
began to sell off. Then after chopping around, it mounted decent rally. This
action has it closing well and tacking on another 2% plus.

src=”https://tradingmarkets.com/media/images/Landry4/otc050201.gif” width=”470″ height=”320″>

The S&P and Dow began to
stall out which suggests that the extremely overbought situation may beginning
to take its hold.

So what do we do? The fact that the Nasdaq became even more
overbought combined with stalling in the S&P and weakening internals
suggests that we remain vulnerable at this juncture. I’m still positive on the
market based on the tape, especially in tech, but I think we are long
overdue for a few days of correction. Therefore, my commentary essentially remains
the same: continue to focus on the long side but keep it light, manage existing
longs and consider a short or two.

Looking to potential setups, Shaw Group
(
SGR |
Quote |
Chart |
News |
PowerRating), on the Pullbacks
Off Highs List, still looks like it has the potential to resume its strong
uptrend.

src=”https://tradingmarkets.com/media/images/Landry4/sgr050201.gif” width=”470″ height=”320″>

Pharmaceutical Product Development
(
PPDI |
Quote |
Chart |
News |
PowerRating), on the Pullbacks
Off Highs List, looks like it has the potential to resume its strong
uptrend.

On the short side, Ecolab
(
ECL |
Quote |
Chart |
News |
PowerRating), mentioned Monday
night, still looks vulnerable. Just wait for follow through to the downside here
as it did close well.