This Is Why I’m Not A Breakout Player
Looking to the indices, on Friday, the Nasdaq gapped to new
highs (a) but quickly found its high and began to sell off for a solid trend day
lower. This action has it closing poorly(b).Â
The S&P sold off hard after tagging the top of its
trading range.
This action keeps it in a trading range and has it nearing
its 50-day moving average.
Looking to the sectors, the selling was broad based.
Stronger sectors such as cyclicals, semis, and retail reversed after trading
higher. So far though, this action only appears to be corrective in nature (i.e.
pulling back). Tech areas that have been trying to break out such as biotech and
software stalled at resistance. On the downside, banks and financials sold off
fairly hard. This action has them stalling short of overhead resistance and
could suggests that a top is in place here. Major drugs continued to slide and
remain in a solid downtrend.Â
So what do we do? As I’ve suggested before,
breakouts are prone to failure. Friday was a good example this and is why I like
to let markets prove themselves first and then look to enter on the first
pullback (provided of course, the trend shows signs of resuming). Next week is
notorious for being light and choppy as summer comes to a close. Combine
this with the fact that we remain stuck in a trading range and I see no reason
to get excited about the markets. Therefore, continue
to keep it light until the trading range resolves itself (either way).
No setups tonight. I would imagine that we will see setups
soon with the end of the summer doldrums near.Â
Best of luck with your trading on Monday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“…..The best thing about Dave Landry on Swing Trading is that it is so easy to read and understand. Examples are numerous and the theme of money management – with concrete examples – is repeated throughout the entire book….”
Active Trader Magazine
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