Warning Signs, Or…

On Monday, the Nasdaq opened higher and then sold
off. It then re-gained about half of its loses before chopping around
the rest of the day. It wasn’t as exciting as I tried to make
it–essentially it was thin (the lightest volume of the year), narrow
range, choppy trading. 

Being away from the market for a few days has
forced me to take a fresh look. It looks like the Nasdaq may be
forming an inverted cup and handle. This in and of itself isn’t reason
alone to get short. However, it is a warning sign. You might want to
watch the 50-day moving average to make sure it continues to hold.

 

So far, the S&P
continues to hold up well. The bottom of its recent base, circa 1240
and the 50-day moving average, which will likely be to that level
soon, become support levels to watch.

So what do we do? You can’t completely ignore the
above. Keep an eye on the key levels mentioned in the indices. And,
you might want to keep it light on the long side and consider a short
or two.   

Idexx Laboratories (IDXX),
mentioned recently and and on the Pullbacks
Off Highs List, still looks like it has the potential to rally out
of a pullback.

 

On the short side, Long Drug Stores (LDG),
on the Pullbacks
Off Lows List, looks poised to resume its downtrend.

Example Time

When
trading pullbacks, it’s a good idea to lock in partial profits
as the old highs are approached. This is because you won’t know until
after the fact if the stock will break to new highs or form a double
top. For example, Genesis Microchip (GNSS),
mentioned last Thursday, tailed off and closed poorly (a) after
hitting its old highs (b). This stalling action is a potential warning
sign. At this juncture, you don’t know if the stock will continue, or
fail. However, by taking partial profits and tightening your stop on
your remaining shares, you’ll be prepared for the latter.

 

Best of luck with
your trading on Tuesday!

Dave
Landry

P.S. Reminder: Protective stops on
every trade!

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