Smells Like Short Covering
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.
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On Thursday, the Nasdaq lapped slightly higher (a and found high early on.
The index then slid and lost over 200 points as it probed lower. Just when it looked its worse, the index turned around
and recouped nearly all of its losses in the last 90 minutes of trading. This action leaves a
tail lower and has the index closing well above its open (b).
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The reversal rally smells a lot like the shorts scrambling to cover
combined with some fast money bottom fishing. The problem is, the
shorts will likely jump back on this market on any weakness. Weakness that would also likely scare out the bottom fishers.
So what do we do? A one-day reversal doesn’t get me too excited. If we
had lots of other market timing signals kicking in here, then maybe, but we don’t. Therefore, (here comes the preaching) stick with the more
defensive issues on the long side and look to short the speculative issues on the short side.
Looking
to potential setups, ICN
Pharmaceuticals
(
ICN |
Quote |
Chart |
News |
PowerRating), mentioned Wednesday night, sold off earlier on
Thursday but reversed to close well. This suggests its uptrend remains intact.
Raytheon
(
RTN.B |
Quote |
Chart |
News |
PowerRating), on the Pullbacks
Off Highs List, has formed a high level “micro” cup and handle.
On the short side, Homestore.com
(
HOMS |
Quote |
Chart |
News |
PowerRating), on the Pullbacks
Off Lows List, looks poised to resume its downtrend out of a three-bar
pullback from lows.
Continuing on the short side, Novoste
(
NOVT |
Quote |
Chart |
News |
PowerRating),
also on the Pullbacks
Off Lows List, looks poised to make another stair-step lower.
Best
of luck with your trading on Friday!
face=”Arial, Helvetica”>Dave Landry
P.S. Reminder:
Protective stops on every trade!