Stock Trading: Rallies, Profit-Taking and How Markets Really Work
What does the market do after it rises or falls consecutive days in a row?
Common wisdom states that a market that rallies a few days in a row is strong and a market that drops a few days in a row is weak.
–from How Markets Really Work: A Quantitative Guide to Stock Market Behavior
Those of you who were intrigued by the question of what the historical data says about how stocks have typically performed after five day rallies and are interested in pursuing the concept deeper are encouraged to check out another of Larry Connors’ books, How Markets Really Work: A Quantitative Guide to Stock Market Behavior.
How Markets Really Work actually predates, Short Term Trading Strategies That Work, and anticipates many of the themes that are developed in Short Term Trading Strategies That Work.
Read more about How Markets Really Work here.
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After a pause on Thursday, shares of both ^V^ and ^MA^ were bounding higher again to end a very strong week in the S&P 500. The stock market will be closed on Monday for the Independence Day holiday in the U.S. and markets are poised to open very overbought next week.
Here are 7 Stocks You Need to Know for Tuesday
Shares of ^DRI^ gained more than 6% on Friday, rallying to their highest levels of the year. Now overbought above its 200-day moving average, DRI has closed higher for four days in a row.
Also rallying to year-to-date highs at the end of the week was industry rival ^EAT^, which closed higher by nearly 7%. Up more than 4% but trading below its 200-day moving average were shares of ^RT^.
Shares of ^SWHC^ gained more than 13% in trading on Friday to close higher for a third session out of the past four. SWHC has been trading below its 200-day moving average since March, and is now overbought below that level.
Resort stocks are on the move heading into the prime of summer vacation season. Up nearly 4% at week’s end were shares of ^WYNN^. The stock has closed higher for five days in a row.
^HOT^ was also up on Friday, gaining well over 3% to climb back above its 200-day moving average. HOT has been trading below its 200-day since the beginning of June.
Also climbing back above its 200-day moving average among leisure stocks were shares of ^DIS^. Shares of DIS have closed higher for three days in a row and are short term overbought.
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David Penn is Editor in Chief of TradingMarkets.com