Re-test Of Lows?

July 10, 2001
Dave Landry

On Tuesday, the Nasdaq gapped open and proceeded to sell
off for a solid trend day lower.

This action has it closing just below the recent support
levels. It’s important for it to stabilize in here. Otherwise, the April lows
look like the next level of support.

The S&P also sold off to
close poorly. The April lows also look like a possibility here.

So what do we do? This is where I once again give my
“oversold market speech.” If you try to get short now, the market will
bounce from the oversold condition. If you try to buy, oversold will become more
oversold. Therefore, continue to proceed with caution regardless of which side
you play.

Looking to potential setups, on the short side,
Sigma-Aldrich (SIAL),
mentioned Monday night, still looks vulnerable.

VIX Update

A few of you have asked me to comment on the VIX now that
it has begun to rise. As you know, the VIX measures complacency and fear in the
markets. Low levels suggest complacency and high levels suggests fear. Because
things get torn down a lot faster than they get built, I usually get most
concerned when the VIX is at relatively low levels. Recently, (see archives) the
VIX skirted one-year lows. This suggested that a sell off was looming. Now, that
the sell off is here, you can see that the VIX has begun to rise. However, it
has a long ways to go before reaching panic levels.Â

Walk Through Con’t.

Lately, we’ve been looking at where we could have entered,
taken partial profits and tightened stops on Human Genome Sciences (HGSI),
a stock mentioned recently. If you haven’t read these commentaries, now might be
a good time before proceeding.Â

As you likely know, on Tuesday, the selling resumed in HGSI.
This leaves us with several options. First, since the stock has move over 20% in
five days, there’s nothing wrong with locking in some or all of the remaining
profits.Â For purposes of this walk through, we’ll assume that a we’re
still short a piece. Therefore, we’ll continue to trail stops at two bar highs.