Still Not Excited
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On Thursday, the Nasdaq gapped higher and
initially continued higher. It then chopped around before finishing
just about where it started. This action has the index closing poorly.Â
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The S&P also close poorly after tailing
higher.
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So what do we do?
Once again, the media sure seemed excited about the market being up.
The fact that it tailed off was certainly down–played.
To me this was more important than the fact that we closed up. It
suggests that the rally that started just yesterday may already be
fizzling. However, until proven otherwise in this choppy environment,
continue to look to play both sides. Just keep it light and remain very
selective.
Looking to potential
setups, MRO
Software (MROI),
in the strong application software sector, has formed its first
pullback since a high level base breakout. This action sets it up for
another potential up leg.
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On the short side,
Teradyne (TER),
in the vulnerable semi equipment makers, is a pattern I call a Bow Tie
“kiss.“
This is where the Bow Tie is in the process of forming when the price
comes up to “kiss” the pattern (a). See my Advanced Bow Ties
lesson for more on this subject.
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Off The Trial,
Setup Again?
Lately, I have been
showing how a trailing stop could (hopefully) be used to
capture an extraordinary gain. I was using Abgenix (ABGX),
a Bow Tie short mentioned recently, as an example. If you haven’t read
the archives, now might be a good time to do so. When
I last left off, I discussed that the trailing stop was lowered to
just above last Friday’s high,
which also corresponded with a recent high (a). On Thursday, the stock
rallied to just above this level. Because I did not give an exact
price, let’s assume that the stop was hit. Notice that the stock then
turned around to sell off to close poorly (b). I can assure you that
they won’t always turn back in your favor. Always honor your stop.Â
Speaking of closing
poorly, the stock now once again looks vulnerable. Should it trigger,
a protective stop placed above the recent highs (a) would be a logical
level.
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Best of luck with
your trading on Friday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“….Landry
writes clear, lucid prose, and uses lots of examples. I like this book
because of Landry’s simple approach. He shows many useful trading
ideas instead of trading theory….. It’s a good introduction for a
novice trader…..”
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