This Week’s Battle Plan
This
week’s piece was written by Larry Connors with the assistance of Brice Wightman (photo).
For the past three
weeks, we have talked about how positive it is that the market is
ignoring the many recent negative events. This week saw even further
confirmation of this. Monday and Tuesday’s market decline was a natural reaction
to a very overbought condition. Last Sunday’s multiple CVR
sell signals were followed by profit taking for two days — profit taking that
came from sectors up as much as 30% in a month and a half. The key days, though,
were Thursday and Friday…especially Friday. The bad news du jour was that
companies eliminated more jobs last month than they have since the good-old
Jimmy Carter days, and the jobless rate hit a five-year high. More people
unemployed, less money for consumers to spend, and another blow to an already
fragile economy. The market should have been decimated. Instead the Dow rose
nearly sixty points. And the point we will continue to
make here again and again is that “if this barrage of bad news can’t knock
the averages lower, what will”? And again, what happens when good news
starts showing up?
To answer that last question, let’s look at what
happened to Computer Sciences
(
CSC |
Quote |
Chart |
News |
PowerRating) on Friday. Thursday after the close,
they announced better-than-expected earnings. Friday, the stock gaps 4 points
higher in early trading and proceeds to close up 6 points for the day. This type
of positive action is beginning to occur with some regularity. For the past year
and a half it’s been: a) miss the numbers, b) gap lower, and c) drift lower for
days and months — typical bear market behavior. Now its a) beat (or even just
hit) the numbers, b) move higher immediately and c) hold/move higher — typical
bull market behavior. We’re not going to be as bold as to predict we are in a
bull market. But we are sure beginning to see early bull market-like behavior
coming in. And the easier money is now being made on the long side, not on the
short side. This week, and over the next few weeks, your focus and game plan
should be to find those companies whose stock prices shrug off bad news and then
rise. And find those companies who announce better-than-expected news and rise
sharply. These are the names that will provide you with the very best
opportunities for healthy short-term trading profits.
Sector and Stock Watch
Last week we talked about the number of consumer
stocks showing up on Mark
Boucher’s lists. This week look at a chart of Sears
(
S |
Quote |
Chart |
News |
PowerRating), further evidence
of the market telling you the economy will be turning. As Jim Cramer correctly
pointed out on CNBC on Friday, consumer stocks lead the way out of bear markets.
And all those stocks on Mark’s list from last week, plus the action of some of
the major retail names, are further confirmation of what is occurring. For your
trading, look for the strongest consumer/retail names found on our stock
lists and our stock
scanner. These are the companies that are leading the charge.
Other Markets
For those of you who are futures traders, both
Cotton
(
CTZ1 |
Quote |
Chart |
News |
PowerRating) and Coffee
(
KCZ1 |
Quote |
Chart |
News |
PowerRating) (discussed 2 weeks ago), came to life
this week. Both had weekly closes above their open for the week, a first in over
two months. Plus, the New York Times business section did a front page
feature story last Sunday declaring that “coffee prices are dead.”
Always a good sign that a bottom is near. Click
here for details on how to trade these commodities.Â
Coming This Week
Mark Douglas,
who taught many of us the mental game of trading with his classic book “The
Disciplined Trader,” will be doing a two-and-a-half-day workshop for us in
December. Mark will teach you that, although great strategies are vital, the mental
game of trading is where the battle is won and lost. And tens of thousands
of traders have learned this directly over the years from Mark’s writings and
work. Because Mark insists on keeping the sessions as intense and hands-on as
possible, the workshop will be limited to 20 traders.
For details on how you can attend, click
here.
Our interview with
Michael Steinhardt will be published Saturday. You’ll learn how a
$100,000 invested with him in 1967 grew to $48,100,000 in 1995 when he retired.
These profits did not come from buy and hold, they came from trading!
Still waiting for final approval from the CBOE
for the launch of Saliba Options…hopefully
late this week. Click here
if you would like to be notified when we go live.
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.
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