Playing Chicken
On Tuesday, the Nasdaq gapped lower and chopped around in a
narrow range. It did manage to close well though. This action puts it right back
at its 50- and 200-day moving
averages.
The S&P action was a little more constructive than the
Nasdaq. It recovered to close well after tailing lower. However, it remains
below the 1080 resistance level.
The VIX is approaching levels not seen since July, 2001.
Does this mean the market can’t go higher? No. There are no absolutes
when it comes to the markets. Is it cause to err on the side of being too
cautious? Yes.
So what do we do? The fact that the S&P has yet to
break though resistance, combined with low VIX readings is reason enough for me
to continue to play chicken. By this I mean sticking with issues that have
outperformed the market before the recent run up and have had
orderly corrections as of late. As mentioned recently, defense, consumer
non-durable, homebuilders and gaming-resorts fit the bill, or should I say beak,
here.
Looking to potential setups, Mandalay Resort Group
(
MBG |
Quote |
Chart |
News |
PowerRating),
mentioned Monday night as a Trend Pivot Pullback, still looks like it has the potential to resume its uptrend, especially if it can take out Friday’s pivot high (a).
For those with big ones*, volatile L 3 Communications
(
LLL |
Quote |
Chart |
News |
PowerRating),
in the strong defense sector, looks like it has the potential to resume its
strong uptrend. Just make sure to give it plenty of room (and trade fewer shares
to compensate) since this stock is prone to fairly large intraday moves.
Best of luck with
your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
*Accounts.
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