Testing The Waters For A Dead Cat
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.
On Monday, the Nasdaq gapped lower (a) sold off sharply,
came back from the dead and even went positive, but, then sold off into
the close. This action has it pretty much closing where it opened (b).
To my surprise, after doing my analysis, I’m not as much of
a bear as I thought I’d be. In fact, I think we could see a “dead cat”
bounce over the next few days.Â
Why?
First, we are very oversold in here based on price action
and the advance/decline readings.Â
Second, the 3-day moving average of the NYSE TRIN hit a new
30-period high (Friday) and has begun to turn down (a). My research has show
that the market historically has been higher seven days later 71% of the
time.
Third, tonight the VIX closed below its open (a), its low
is greater than its 10-day moving average and it closed more than 10% above its
10-day moving average. My research has shown that when this occurs the market historically
has been higher three days later 84% of the time.
The Caveat/Disclaimer
Now, before we start kissing each other, notice above that
I emphasize historically. This is based on mechanical (computer based/objective)
systems looking back (as in hindsight is 20/20) over the past 10-years of mostly
bull markets. These systems don’t know what’s going outside in the real
world (for those who have been away, there’s this thing in Florida).
So, what do we do? Based on the above, there is the
possibility of a tradable bounce over the next few days. Therefore,
nibble, but keep the stops in as no one knows how high a dead cat can bounce.
One last point, you don’t have to be the first one in, wait for follow through
to the upside before testing the waters.Â
Looking
to potential setups, TJX
(
TJX |
Quote |
Chart |
News |
PowerRating), on the Pullbacks
Off Highs List, has formed a bullish outside day in a pullback (a). This
suggests its uptrend remains intact.
NetIQ
(
NTIQ |
Quote |
Chart |
News |
PowerRating), also on the Pullbacks
Off Highs List, sold off sharply earlier on Monday but reversed to close
well. This action also suggests that its uptrend remains intact. Â
Pharmaceutical Product Development
(
PPDI |
Quote |
Chart |
News |
PowerRating)
is another pullback that looks like it has potential.
On the short side, GlobeSpan
(
GSPN |
Quote |
Chart |
News |
PowerRating), Trading
Where The Action Is List, looks poised to resume its strong downtrend.
Amerada Hess
(
AHC |
Quote |
Chart |
News |
PowerRating), on
the Pullbacks
Off Lows List, appears to be stalling out in its rally from lows.
Best
of luck with your trading on Tuesday!Â
face=”Arial, Helvetica”>Dave Landry
P.S. Reminder:
Protective stops on every trade!
P.P.S. Good news! I’m not going to plug my upcoming book
on swing
trading at a 20% discount tonight.
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