This Week’s Battle Plan
The
Market
A few weeks ago, we discussed the fact that healthy markets “walk
off” overbought conditions. This means a few days of a
correction/sideways movement and then a resumption of the trend. This
is what we saw again this week. Tuesday and Wednesday down, followed
by Friday’s rally. This is the sign of a well-supported market, and is
usually the sign that higher prices can be expected.
Now, let’s look at the names on this weekend’s Proprietary
Momentum list: Lands End (LE),
a retailing company, leads off. And two more retailers follow, Children’s
Place (PLCE)
and Nike (NKE).
If business was so terrible, there is no chance in the world these
three names would be on these lists. But they are. And Manpower (MAN),
an employment company, is also on the list! The reality of the
business world has not been told in newspapers, TV and internet sites
run by journalists. It’s been told week after week in the performance
of these stocks. And as these stocks go,
along
with the ($SOX)
and ($XBD.X),
so
will our market go. And for two months these stocks have correctly
pointed us higher.
More Markets…
Now, let’s move onto the Momentum
10 Technology list. More good names. Guidant (GDT),
Electronic Data Systems (EDS),
Boston Scientific (BSX)
(also mentioned in Dave
Landry’s Outlook this weekend), and Computer Sciences (CSC)
lead the list. Again, the money is going into solid names, not
speculative junk.
All this brings
us to the same conclusion we came to two months ago: the economy is
far healthier than anyone is giving it credit. This real story is
being told by the retailing stocks, it’s being told by by the semis,
it’s being told by the brokers, it’s being told by the bond market,
and it’s even being told by the base forming and/or price increases we
are seeing in industrial commodities (see Mark
Boucher’s piece for more of this.) The shorts and the writers can
continue making their “we’re going to zero” case over and
over again. But, if you’re going to make money at this game, it’s far
smarter to follow the price movement in correlated and
cross-correlated industries than to follow a bunch of opinions. There
is much less risk of falling off a cliff that way.
Sentiment
Even though solid signs for the future continue, on a shorter-term
basis, one must acknowledge that some complacency has set into the
marketplace. First, the VIX ($VIX.X)
is at it a level that
hasn’t been seen since lastÂ
August 29. At that time, the market then proceeded to lose ground 11
of the next 12 days. This does not necessarily mean this will
happen again. It simply means that the fear factor, which fuels
rallies, is missing today. Second,
look at OEX options prices. The 40 point out-of-the-money puts are
priced about 2 1/2 – 3 times the 40 point out-of-the-money calls.
Goldman Sachs did a study a few years ago showing that such levels
usually precede short-term sell-offs. Again, not a reason to sell
the ranch, but it should caution
you
that a short–term
correction may be approaching.
A “Nightly
To-Do List”
Here is a
way to improve your daily trading results.
Let’s go back to our nightly indicators lists. Combined,
the names on these lists tell you
repeatedly where
we are headed. No opinion, no biases, just good information. If you
want to incorporate
this information into
your trading, here is a “nightly to-do list” that can help
you:
1. Begin
with the Nightly
Market Bias page. Look for multiple signals in the same direction.
Many of the combined CVR signals have correctly predicted 2-3 day S&P
market direction 62-67% of the time. This is a solid edge and a good
place to start.
2. Look at the Proprietary
Momentum lists. Look for companies from the same industries on the
list. This tells you where the money is flowing. And more importantly,
look for the industries whose price action is in direct conflict with
Main Street views. That is where your biggest advantage will lie.
3. Then move onto the strongest/weakest
sectors for the past 5 days
list. They will also tell you where the money is flowing. And again,
look for those industries and stocks that are moving in the opposite
direction of where they are “supposed to be” moving.
Remember, one of the main keys to successful trading is the ability to
think and execute counter-intuitively. These lists get you there.
4. If you are looking for a staple of good names to focus on, both to
the long side and to the short side, Mark
Boucher’s lists is a great place to start. Here you will find the
best performing stocks with solid fundamentals to the upside. You will
also find poor-performing stocks with weakening fundamentals to short
to the downside.
5. End each evening by looking at the nightly TradingMarkets
Reports,
on the home page. No
opinions in these reports. Just a nightly “briefing” and
“focus lists” for you to use for the next day of trading.
The Reports key on the best and worst-performing stocks (and options
and futures) from our lists that have significant patterns or had
significant price and volume movement. These reports are available to
you each evening at 7 pm EST.
By doing the above five steps on a nightly basis, you will gain a
large edge over many traders and investors on Wall Street who trade
without a plan and wing it everyday. Try this plan nightly for the
next four weeks…I suspect you’ll be happy with the results.
On The TM
Front…
There are a couple of spots left for the Mark Douglas “Mental
Toughness” workshop this upcoming weekend in Los Angeles. I’ve
said it before, solid trading strategies are a must, and combining
these trading strategies with proper mental training will make your
results even more substantial. Click
here for the details of Mark’s workshop.
We have added four new trading services to TradingSubscriptions.com.
The new services include a daytrading service from Kevin
Haggerty, two options services from Tony
Saliba, and a daily VIX
and Volatility Alert service from myself. Click
here for more details on each.
We have a number of “how to use the TM site” lessons coming
up in the pipeline. TradingMarkets has now grown to over 3000 pages of
information and these new lessons will teach you the best ways to use
this information to your trading advantage.
Until next week, best of luck with your
trading!
Larry
Connors
and Brice Wightman
Larry Connors is CEO and co-founder of
TradingMarkets. He is also the author of four books on trading,
including Street
Smarts,
co-written with Linda Raschke, Connors
on Advanced Trading Strategies, and his latest release, Trading
Connors VIX Reversals.
Brice Wightman is a market analyst with
TradingMarkets.