What Is The Price Level Where You Scale To Trade A Bounce?
The market bounced
rather weakly today after a sharp selloff yesterday. The Dow, S&P,
and Nasdaq are all sitting right near their 50-day moving averages. Things have
been very choppy lately as the market has had trouble finding a direction for as
much as two days in a row. As of now, the intermediate-term trend is still up
and the short-term pullback seems to be bumping up against supports and may be a
little tired in some sectors. I believe the long side is still the place to
focus. Let’s see how today’s attempted bounce plays out over the next few days,
and then re-evaluate.
After receiving a few questions, I thought I would illustrate a point I made in
last Monday’s column. When trading ETF’s, I believe there are conditions under
which it would be appropriate to scale in to a pullback in anticipation of a
bounce. It is not necessary to wait for the bounce to begin. When trading
stocks, this doesn’t hold true. The reason for this is that ETF’s tend to
oscillate better than individual stocks. The trade I suggested in RTH turned out
to be a nice trade as it bounced well for the next couple of days. Individual
stocks aren’t as reliable.
Here’s a few recent sharp pullbacks in individual (and formerly leading) stocks
that I noticed over the past couple of weeks.
Up to this point, these have not been buyable pullbacks, and not just because of
the big gaps. There was never an indication that a bounce was ready to occur.
Check out BIDU. All the excitement a week and a half ago has dissipated. It is
now trading about 44% off its 2nd day highs. While this one may still bounce,
the chances of it being a significant upside move have been diminishing by the
day as more and more resistance is built up on the chart. It’s another great
example of the need to wait for a resumption of the upmove before entering an
individual stock.
So while OIH is nearing an area where I might be interested in some, you can bet
I won’t be rushing into any oil stocks without confirmation.
Best of luck with your trading,
Rob
robhanna@comcast.net
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