When The Correction Will Occur
On Wednesday, the Nasdaq opened flat but soon began to
rally sharply. It pulled back and consolidated its gains throughout mid-day
before resuming its rally going into the close. This action has it closing well
and at fresh highs for the year once again.
The S&P put in a similar performance. It too closed at new highs for the year.Â
So what do we do? Bull market euphoria is in full swing. I
even saw an analyst on TV today literally pound the desk as he made his bullish
arguments*. So, maybe it is time to party like its 1999? Naa, once
again, it’s important not to get caught up in the moment. You must remain
prudent. If you are long (as you should be as a trend follower), then you should
be scaling out and lightening up. Yes, it would be great if the markets went up
forever, but unfortunately, that’s not how it works. Markets correct from
overbought conditions–sometimes sooner and in this case, sometimes later. Therefore, on
new positions, only consider those stocks that have already corrected but make sure you keep it light.
Looking to potential setups, Cima Labs
(
CIMA |
Quote |
Chart |
News |
PowerRating), the
strong drug delivery sub-sector, looks poised to resume its accelerating uptrend
out of a pullback–a setup I have dubbed “Accelerating Momentum
Strategy” (AMS).
Random Thoughts
Speaking of 1999, bonds** remind me of the glory days of
stocks. Last month they had their largest melt-up in history over a 3-week
period (use Ishares Trust
20+ Year
(
TLT |
Quote |
Chart |
News |
PowerRating) if you only have stock quotes). They’re looking a
little frothy up here. If you have a mortgage, with a 4.36% yield in the
30-year, you might want to consider refinancing. And if I’m wrong, you can
always re-finance again when it gets to 3%, 2%, 1%?
Best of luck with your trading on Thursday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
*One of my readers swears that he has caught
every correction by fading this analyst.
**Full disclosure, I co-manage a fund that trades
spreads on bond future options.
“….. thanks for writing your simple,
informative, and easy to understand swing trade book. It was very helpful to me in many ways…..
Larry S.
Â
