The Song Remains The Same
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On Friday, the Nasdaq gapped sharply lower on the
open but quickly found its low and mounted a massive comeback.
However, this petered out quickly. After giving up about half of its
gains, it then chopped sideways the rest of the day.
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Looking to the
monthly chart, we see that today’s action puts the index near the
October 1998 lows.
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After tailing lower,
the S&P also mounted a massive intra-day comeback. However, this
too failed to hold.
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Looking to the
monthly here, we see that it too is near its October 1998 lows.
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The VIX ($VIX.X)
gapped to new highs as the market (yet again) panicked but imploded as
the market bounced.
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So what do we do?
Lately, I know I’ve been boring you to death as it appears that I’ve
just been cutting and pasting my commentary from one day to the next.
Essentially, the song remains the same. The severe oversold nature of
the market and the market timing signals suggests that we should
bounce but we remain in a frustrating event–driven
environment. If you try to short, the market will finally bounce. If
you don’t, you’ll sit back in anguish as oversold becomes even more
oversold (yet again). Probably the best advice is to continue to keep
it light or don’t trade at all.Â
Should you decide to test the waters, Laboratory
Corp. (LH)
has formed a big picture inverted cup and is beginning to form a
handle. This action suggests that its poised to resume its downtrend.
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Ignore ’em
On Thursday, I showed Fifth Third Bancorp (FITB)
as a potential short. On Friday, the futures were sharply before the
open. And FITB, like many stocks, gapped sharply lower on the open. As
you can see, this turned out be near the lows of the day before the
stock bounced. This provides a good example of why you should not
place new entry orders before the open–especially when the futures
are down sharply. For more on opening gaps, see my article Opening
Gaps: Trade ’em, Fade ’em or Ignore ’em.
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Frustration,
Aggravation and Sore Hands
Lately, I’ve been
receiving quite a few emails complaining about trading conditions.
Some were frustrated about the last four months while others, more
recently, were “tired of sitting on their hands.“
Yes, it has been less than ideal. The summer was one of the
lightest and choppiest in memory. Price persistency, the trend
followers best friend, was hard to find. In this environment, you had
to pick your spots very carefully–waiting for the market, the sector
and the individual stocks to set up. And, you had to exercise strict
money management which includes using initial protective stops, taking
partial profits and trailing stops. As for as being tired of sitting
on your hands, I suggest that you continue to remain patient. Event
driven environments are difficult for the swing trader. At the risk of
preaching, the markets will be there for a long time, make sure that
you are too. Use this time to “sharpen your ax”. A
related article on this subject would be My
Most Valuable Trading Lesson.
Best of luck with
your trading on Monday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
S.
I look forward
to meeting you in two weeks at TM2001.
Don’t hesitate to register, because in addition
to
showing you every important variation on pullback setups, I’ll also be
teaching you my favorite new
techniques including: how to capture trends before the crowd
using “transition in trend” patterns
and how to ride huge momentum off false moves…both
to the long and short side.
“…Well!
After putting up with weeks of your shameless pimping of your book I
bought the damn thing. And, it is excellent. Would and do recommend it
to anyone. You managed to accomplish what you mentioned in the
introduction, writing that is clear, concise and as void of
abstraction as possible–as possible as it is in this semi-abstract
game we play. Very well done.
Chuck L.
Homer,
Alaska
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No risk,
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