Two Things That Concern Me About This Market

September 8, 2003
Dave Landry

Looking to the indices, on Monday, the Nasdaq opened firmer
and rallied sharply in early trading. It then traded sideways for much of the
day before rallying again going into the close. This action has it closing well
and at new highs for the year.Â

The S&P put in a somewhat similar performance. It too
is at new highs for the year.Â

So what do we do?Â I was hoping that we would
see more corrective action early this week. This would have cleaned out some
nervous longs, attracted some eager shorts and would have been generally healthy
for the market. Instead, Monday’s action puts us back into the overbought
column. Another concern is the fact that the VIX hit its lowest level in over
3-years. More importantly, it’sÂ beginning to stretch away from its
10-day moving average. This suggests complacency. And, as you know, markets tend
correct after investors become complacent. Considering the above you might want
to focus on areas such as retail that have recently corrected (e.g. pulled
back). However, keep positions on the light side until we see more corrective
action in the indices. You might also want to consider a short in the index
shares (on signs of a reversal) as a hedge against existing longs.Â

Looking to potential setups, there are numerous stocks
setting up in the aforementioned retail sector. When I see this, I often
consider a trade in the ETFs. Notice that the Retail Holdrs
(
RTH |
Quote |
Chart |
News |
PowerRating) are set up
as a pullback.Â

Actel
(
ACTL |
Quote |
Chart |
News |
PowerRating), mentioned recently (see archives for details),
still looks like it has potential. However, you might want to tread lightly here
based on the extended nature of the semis and the market itself.