Up The Wall Of Worry
On Tuesday, the Nasdaq open higher and chopped
around. Then, late in the day, it mounted an impressive Energizer
Bunny rally that kept going and going — right into the close. This
action has it closing well and at multi-month highs.
The S&P also had a nice rally. This action is
important, as just yesterday it was testing support.
So what do we do? As
you know, yesterday the market held up well in spite of the whole
world coming unglued. And today’s impressive turnaround to the upside
shows that the market truly doesn’t care. So, why fight it? Focus on
the long side, but at the risk of preaching, wait for entries and
honor your stops.
Looking to potential setups, Mentor Graphics (MENT)
looks like it has the potential to resume its strong uptrend out of a
pullback.
Once again, the Biotech Holders (BBH),
mentioned recently, still look like they have the potential to resume
their uptrend. This is especially true if they can take out last
Friday’s pivot high.
Should I Stay Or
Should I Go…Continued? — OR — A New Setup?
When we last left
off, I was discussing whether you should exit or wait for your stop to
get hit on trades that don’t work right away. I discussed that in more
recent times, I’m more inclined to wait to see if the trade will work.
Well, so far, the Boston Scientific (BSX)
example has not worked. However, it really hasn’t done anything wrong
yet either — it continues to hold above its recent lows (a). Let’s
give it a few more days to see what will happen.
While analyzing the
above (the
great thing about writing this column is that it forces me to look at
charts and think! Please, don’t try this at home.*), I noticed that
BSX really hasn’t moved much lately on a closing basis (a).
This action suggests that it was setting up as a low–volatility
situation. And this is confirmed by a low 6/100 historical volatility
ratio (b). Therefore, watch for a larger-than-normal move (in either
direction) as volatility reverts to its mean. Because the stock is in
a strong trend and pullback-ish in nature, my guess is that the
"either direction" move will be a higher one.
Other
Thanks for all the contest entries. I’ll announce
the winners Thursday night. If you haven’t already done so, make sure
you read the fine print (see archives). There’s a lot of useful
information there!
Best of luck with
your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
*Editor’s note: For those new to this
column, the joke flag is always flying. In this case, it appears Mr.
Landry, through the use of sarcasm, is challenging you to look
at charts and think.
"…….Your
instructions and techniques were the first that I have read that are
easy to understand, follow and duplicate without needing a masters
degree in mathematics, economics or finance like so many of other
books and articles I have read on investing in the stock market.
"Thank You" is such an understatement!!….."
Dave
F.
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