Time To Jump In; Time To Watch
As you know,
both the Dow and the NASDAQ opened strongly this morning, especially the NASDAQ,
which made a gap-up. I’m sure most of the traders expected this strength would
continue throughout the day, but shortly after 10:00 a.m., the NASDAQ began to
fill the gap. Needless to say, many traders were forced to get out from their
long positions.Â
When the momentum is building up, it is very tough to just watch the market. But
if you don’t want to be victimized by a morning reversal, it may be wise to stay
out of the opening moment. Let me show you an example.
The chart below is a five-minute chart of International Business Machines (IBM).
The red horizontal line indicates yesterday’s high (6/18/01). As you can see,
IBM hit the high in the first five minutes of trading after making a gap-up
open. Traders were hoping the stock would continue its upward move, but it began
to consolidate. Finally, around 11:00 a.m., disappointed traders started to sell
the stock.
What I want to suggest is that you should observe the first half-hour of the
market. The only thing you need to do is mark the first half-hour high and low.
If the strength is real, the stock will break above the first half-hour high. If
the strength was a fake, the stock would break down below the first half-hour
low. As you can see, the first half-hour low was violated at 11:00 a.m. And
eventually, IBM started to fill the morning gap later in the afternoon.
Sometimes it pays to stay out of the market.