Why I Believe The Market Will Correct
On Tuesday, the Nasdaq opened flat but immediately began to
rally. However, this rally was short lived as it quickly dropped back below its
open. It then chopped is way higher but sold off again late in the day. It did
manage to end in the plus column though.
The S&P was also choppy. However, it ended in the minus
column.
So what do we do? The overbought nature of the market
combined with stalling action in the indices and multiple sell signals
(recent VIX signals and a Trend Reversal on Tuesday) suggests that we are now in
correction mode. Therefore, continue to look for shorting opportunities in
sectors that failed to materially participate in the recent rally such as
biotech. For the aggressive, look for shorting opportunities in the index
shares.
Looking to potential setups, the aforementioned
biotechs still look like
they have the potential to continue their rollover out of inverted cup and
handle-like formations. With that said, Myriad Genetics
(
MYGN |
Quote |
Chart |
News |
PowerRating) still looks like it has the potential to continue its downtrend out of a pullback.
Trading Gaps
In my article Opening
Gaps: Fade ’em, Trade ’em or Ignore ’em, I discussed “fading with the
trend.” This is where you look to fade stocks that gap against
the trend. This can often give you a good daytrade or a potential head start on
a swing trade. Myriad Genetics
(
MYGN |
Quote |
Chart |
News |
PowerRating), mentioned above, provides a good
example. Notice how it gapped open (a) but reversed to close poorly (b) and in
the direction of its longer-term trend. For more on this subject, check out the
article under TM University.
Best of luck with
your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“….Your idea about the MAs narrowing, crossing and setting up in proper order sure is a good one. It makes flipping through charts a piece of cake; another great idea from your marvelous book.
Grant C.
