The Mother Of All Reversals
On Monday, the Nasdaq open lower and chopped around for
much of the morning. Then, early in the afternoon, it began to sell off in
earnest. However, it made a sharp reversal (“V” bottom) late in the
day and rallied to close well..
The S&P also sold off hard before reversing to close
well. And, of course, the Dow had the mother-of-all reversals.
The VIX tailed higher to its highest level since the
September lows. More importantly is the fact that it reversed from a “stretched”
situation (measured as 10% or more away from its 10-day moving average and it’s low is greater
than that average). In other words, it’s a repeat CVR-III Modified buy.
So what do we do? The fact that the market came back from
the dead combined with recent (TRIN Reversal) and repeat (CVR-III Modified) buy
signals suggests we will continue to bounce. On the short side, I would continue to scale out
and tighten stops. Monday was a great example of why you should “smoke ’em
if you got ’em,” since many stocks finished higher after being decimated
earlier in the day. Remember, when it feels really good is probably the time you
should be scaling out.
Tonight’s recommendation is probably going to make you gasp
(I know I’m having a hard time typing this while wearing my Trend Following
Moron Shirt, thanks Dennis!). Look to play the bounce in the Q’s. Just make sure
you take profits should the bounce continue and keep a chair ready in case the
music stops.
Best of luck with
your trading on Tuesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“……A long overdue note to let you know I am re-reading your book for the third time; I have a library
full, but I keep returning to yours, because ultimately its the clarity and relative simplicity that appeals to me; And it has contributed to being more successful in my
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simple, but sound strategy in an accurate, disciplined way than to stuff my head with hundreds of different
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overload and just muddies the water for me; anyway, thanks a lot, keep up the good
column;
Richard L.
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