The Most Obvious Thing
On Thursday, the Nasdaq gapped lower but found its morning
low fairly quickly. Then, after chopping around for most of the day, sold off in
earnest. This action takes out the bottom of its recent trading range and
suggests the old lows are a “chip shot.”
The S&P also sold off hard after futzing around.
So what do we do? The good news (for us trader types) is
that we finally got a decisive breakdown out of the trading range. The bad news
is that it puts us in the “damned if you do and damned if you don’t”
oversold environment. To those new to this column, this means that if you
try to short, the market will bounce from oversold. And, if you try to go
long, oversold will become more oversold. Therefore, I think the best thing to
do is to start putting together a list of stocks that might be worth shorting
after the market bounces.
The banks (below) and utilities are sectors that I think still have a long ways to
go. Biotech, now that it is breaking out of its trading range, could offer
opportunities too. And of course, old favorites in longer-trend downtrends
such as the semis could offer opportunities on pullbacks (see archives for some
stocks mentioned here).
No setups tonight.
The Most Obvious Thing
Linda Raschke once said one of the most brilliant things
I’ve ever heard. She said, that “the market will do the
most obvious thing in the most un-obvious manner.” If
you think about that, it makes a lot of sense. If the market is in
breakout/breakdown mode, it will have a false breakout before the “real
deal.” Look at the indices. Notice that they first had a quick
“head fake” (yesterday) below their recent trading range before making the
“obvious” move in the direction of the big blue arrow today.
Best of luck with
your trading on Friday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!