The Song Remains The Same

July 22, 2002
Dave Landry

On Monday, the Nasdaq opened lower but quickly reversed.
However, this rally was short-lived as it sold off hard for rest of the morning.
By mid-day it began to rally but this too fizzled. It then chopped lower for the
remainder of the day.

The S&P also sold off hard to close poorly.

The VIX stretched further away from its 10-day moving
average as fear increased. Once again, this action suggests the market has the potential to
bounce.

So what do we do? Well, the song remains the same.
Obviously the market is “even more” oversold. So, as mentioned Friday,
it’s “really really” too
late to establish new shorts. Once again, see recent commentaries for my canned oversold
speech (I’ll spare you longer-term readers). As usual, in a situation like this, the best thing to do is to continue to scale out and/or trail a stop on
existing shorts.

The Holy Grail (continued)

On Friday I mentioned that my recent Trader
Talk focused on the importance of using sectors. And even more importantly
was to trade stocks within a sector when the sector itself was set up. The recent
examples were oil service
(
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PowerRating), mentioned Thursday and defense
(mentioned in my trading service). Notice how both continued to follow
through on Monday. As you can see, it pays to put the sector behind you,
especially when it is set up.