The Next Market Move Is Obvious

  • June 14, 2001
  • Dave Landry

 

On Thursday, the Nasdaq gapped lower, and sold
off to close poorly. There were a few bounces along the way, but these
were met with eager sellers.

This action has it dropping below key support and
its 50-day moving average. 2000 looks to be the next area of minor
support. After that, it’s anyone’s guess.

 

The S&P also put
in some very poor performance. It broke down out of the head and
shoulders top and sliced through its 50-day moving average and recent
support. 

As you know, each
night I tool through several hundred charts to get a feel for the
market. Tonight, I see a lot of stocks, namely technology, like the
overall market, breaking down from topping formations and cutting
through moving averages.

So what do we do? Well, the market’s breaking
down from a topping formation and slicing through support and moving
averages. So, we should just run out and get short? Not so fast. It’s
not that easy. I’m sure I’m not the only one who recognized the
patterns mentioned above. Remember, markets are perverse, they seldom
do the “obvious”–at least not right away. They often have a
contra move to fool everyone. Therefore,  I’d tread lightly for
now. After the next bounce, we’ll likely have some transition shorts,
such as Bow Ties, set up.

IDEC Pharmaceuticals (IDPH),
mentioned recently, held up well in spite of the carnage. This
suggests that its uptrend remains intact.

Aviron (AVIR),
another biotech, has also held up well as of late.

On the short side,
Applebees (APPB),
home of my favorite chicken fried steak, looks like its poised to
continue its meltdown out of a pullback from lows.

Other

One of the more
common questions I get via email is why do I occasionally show setups
that have already triggered? There are several reasons for this. Not
everyone trades in the same fashion. Some are day traders, some are
swing traders,
and some take a longer-term view.  And even within those styles,
some may use tight stops or simply
exit the market due to poor sector performance or market internals.
The stock may be still worthy for all or some of these styles,
either for an add on, a re-entry or a new trade. Also, speaking of
re-entries, sometimes second entries,
after the first false move (which you don’t know until after it
occurs) are your best entries. In fact, I was hoping that those
“re-mentioned” last night would rally so I’d have a good
example for tonight. Of course, we all know what hope will get you in
the stock market.

Best of luck with
your trading on Friday!

Dave
Landry

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

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would like to thank you for your excellent book. After reading it, I
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