Using Pockets Of Strength

• September 7, 2001
• Dave Floyd

Another day passes, and still no sign of a bottom.
Aren’t you growing tired of this never-ending “Where is the bottom”
conversation? While I am, I remind myself that it is OK for others to be asking
that, for it reassures me that I am at least cognizant of what is going on in
the markets. I won’t tell you with any accuracy what the markets will do on any
given day, but I do enough reading and chart work to have a very clear idea that
the market is not going to turn on a dime and put in the much hoped for “V”
bottom. As a result, my longer-term trading accounts are positioned accordingly.
I will even admit that I do have a bias when I am banging on the keyboard
intraday buying and selling, or should I say selling then buying back cheaper,
at a feverish pace. The lesson: Stay informed, analyze your charts, do scenario
testing. An informed trader is a trader who has conviction, and conviction is
what allows one to dominate.

Yesterday was a wonderful example of using pockets of strength, both on
short-term scalping time frames as well as longer-term to establish short
positions. As I said yesterday, we have had some feverish selling over the last
few sessions, so the market is due for a bounce, but I do not suspect it to last
terribly long. A great example of some short-sale entry points yesterday can be
illustrated by looking at the chart below. The S&P futures rallied
feverishly on the news from the Department of Justice (DOJ) that Microsoft would
not be broken up. So what? Is this news going to change the overall outlook for
PC sales or pump life back into the economy? My answer was a resounding no.
Additionally, the S&Ps ran straight up to an intraday KTN, 1127,
stopped, consolidated and proceeded to tank. Several large liquid stocks offered
excellent entry points with good follow through to the downside.

Also noteworthy on the chart was the price action in the late afternoon. The
S&Ps had put in a couple of bottoms around the 1108 area, and the market
overall felt washed out. A rally never did materialize, but despite being in a
downtrend, it was one of those times where you would break the rules and go
long. Again, I thank some of the people in TradersWire who
shared/confirmed these observations and comments with me. It is truly a valuable
tool.

The employment number has just been released, and it is not looking good
early on for the futures. Greenspan’s liquidity elixir is just not having an
effect yet. This is troublesome for the market. It certainly appears as though
new lows will be within reach on the opening. Have a short bias, but always
remain flexible, since the market can change in an instant. Other key numbers
that will be pivotal are 9700 on the Dow and 1081 and 1091 for the S&P Cash
Index
(
SPX |
Quote |
Chart |
News |
PowerRating).

Key Technical Numbers: (futures)

Have a great weekend and an even better trading day. It is shaping up that
way early on. Remember, go for the throat if the opportunities are there. Or as
Jimmy Rogers would say; “If you see a pile of money sitting in the corner
of the room, go over and pick it up.”

Feel free to send me your comments and questions.

Dave

P.S. I’m looking
forward to sharing the nuts and bolts of how I trade at TM2001 in early October. You’ll learn the two big keys to my trading: 1) How to
define a powerful intraday trend; and 2) The precise
parameters that tell you where to enter your trade in the midst of that
trend. I will also explain to you the “feel and rhythm”
that enables me to trade with consistency. This is one element of my
trading that I could never convey on paper through a set of rules or a
formula. You’ll just have to meet me in Las Vegas, and you’ll know what I mean!