The Most Obvious Thing

On Friday, the Nasdaq gapped lower and sold off
early on. It then drifted and chopped sideways before finishing the
day on its lows.

The good new is that 2000 held. The recent lows
may provide minor support.

 

The S&P was also
hit hard. It took out the bottom of its recent range. Unfortunately,
it doesn’t look like there’s any support here until the April lows.

 

The VIX continued to
revert to its mean, and in fact, as volatility often does, overshot
it. This action sets up a CVR III buy signal. Keep in mind that this
signal is a leading indicator and should not be taken as a
system in and of itself–wait for signs of a turn in volatility and
price.

 

So what do we do? This is one of those
damned if you do and damned if you don’t oversold situations. If you
try to get short, the market will bounce. If you try to buy, oversold
will become more oversold. Therefore, tread lightly.

Looking to potential setups, Quest Diagnostics (DGX),
mentioned Thursday night on the Pullbacks
Off Highs List, defied gravity on Friday and appears to be
resuming its uptrend.

Homestore.com (HOMS)
looks like it has the potential to rally out of a high-level cup and
handle.

On the short side, Burlington Resources (BR),
mentioned Thursday night, still looks vulnerable. Just wait for follow
through to the downside here as it did close well on Friday.

Walk Through Con’t.

On Thursday, we looked 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 Thursday’s commentary,
now might be a good time before proceeding. 

On Friday, HGSI continued its freefall. In fact,
it is now down over 15% in three days. On such a windfall, it’s a good
idea to continue to scale out. Therefore, let’s assume that that we’re
out of another piece by the close. At this juncture, it’s time to
tighten stops. Normally, I like to use a two-bar high. However, on
such a big move I will drop down to a one-bar stop or a percentage
stop. In this case, let’s assume that we will use a one-bar stop on
our remaining shares. 

For more information on money management and
position management read my articles under Traders
Lessons.

Food For Thought

Linda Raschke once said that “the market
will do the most obvious thing in the most unobvious manner.” I
think this is exactly what happened with the VIX recently. It
was “obvious” that the market should head lower due to low
VIX readings, but, the market headed higher first. 

Best of luck with
your trading on Monday!

Dave Landry

sentivetradingco@prodigy.net

P.S. Reminder: Protective stops on
every trade!

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book is organized, concise and well documented in your charts. It is
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