Time To Nibble?
On Tuesday, the Nasdaq opened flat and after a brief blip
up, worked its way lower throughout the day. This action has it near its recent
lows and its February lows.
The S&P also sold to close poorly. This action puts it
near its recent lows.
So what do we do? The fact that the indices are approaching
their recent lows, combined with the oversold nature of the market, suggests that the market has the potential to bounce. However, as you know, oversold can always
become more oversold (as it did on Tuesday). Therefore, look to nibble on the
long side but stick with issues that can trade contra to the major indices (e.g., defense) or those issues that have held up well as of late (e.g., banks).
Looking to potential setups, Wachovia
(
WB |
Quote |
Chart |
News |
PowerRating), in the
aforementioned strong banks (and let’s face it, who would put their money in a
weak bank?) is in its first pullback since breaking out of a high-level
consolidation. This action suggests that it has the potential to resume its
uptrend.
Email Of The Day
Dave my man, please explain in the most technical terms how u define an oversold/overbought market? Throw everything u have at me…I dare u. Is it an
indicator?
Wayne G.
Wayne,
As you know, I don’t use anything that’s “rocket
science” when analyzing the markets. For oversold/overbought I first look
at price. If it has made a large move down over the last few days then chances
are, it’s oversold. I then look at the five-day average of the NYSE advancing minus
declining issues (a.k.a. CHADTP). Readings below -400 suggests an oversold
market. I also look at the three-day average of the NYSE TRIN (this is part of my
TRIN Reversal System) to see if it is making relative lows (e.g., 20 to 30 days).
Finally, I take a quick glance at the McClellan Oscillator, to see if it is below
-1. That’s it.
Best of luck with
your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“….I’ve just finished to reading your book and LET ME TELL YOU IT’S GREAT!!!
….”
RT
Italy
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