What To Do In An Event-Driven Environment

March 31, 2003
Dave Landry

On Monday, the Nasdaq gapped lower and initially continued
to sell off hard. However, it found its low fairly quickly and began to
rally. Then, after trading sideways throughout mid-day, it resumed its rally
again. Unfortunately, it turned back down and sold off going into the close.
This action has it closing poorly and puts the index back to its 50-day and
200-day moving averages.

The S&P put in a somewhat similar performance.

The only good news here is that the 50-day moving average
and 50% retracement (a) held.

So what do we do? Monday was a good example of what happens
in an event-driven environment. Had the war gone well over the weekend, we could
have easily been up just as much (or more). However, as you know, it
didn’t. Therefore, once again, since you have absolutely no control over
the news events, you have to look the technicals. And technically, some sectors
were hit pretty hard on Monday.

For instance, the semis, which
have been holding up fairly well, now appear to be rolling back over. On the
bright side, there were some sectors that help up OK on a relative basis. These included
retail, chemicals, consumer non-durables and drugs. So focus on the long side
and concentrate in these areas but only if the market and sectors show signs of
turning back up. Also, wait for entries (or meaningful intra-day reversals). And
finally, at the risk of preaching, continue to keep it light since you have no
control over what happens in Iraq.

Looking to potential setups,
Teva Phamaceuticals
(
TEVA |
Quote |
Chart |
News |
PowerRating)
looks like it has the potential to continue higher out out of its first pullback
since breaking out of an extended consolidation.