Why I Remain Constructive Towards The Market
On Friday, the Nasdaq opened soft but found its low fairly
quickly and began to work its way higher. It found its high early in the
afternoon and then chopped its way sideways to lower for the remainder of the
day.Â
The S&P put in a similar performance.
So what do we do? The trend, what I like to refer to as the
direction of the “big blue
arrow”, remains up. The fact that we “undercut” the prior pullback
(the horizontal blue lines above) and turned back up is a positive. This action likely attracted eager shorts and
shook out some nervous longs. These players could now be forced to cover or
lured back in respectively. Also of interest is the fact that we got an
Oscillator Swing System Buy and a TRIN Reversal Buy signal on 05/21/03–the day
after the undercut (email me if you need the rules for these systems). Follow through will be key
though–it’s important for the indices to make new highs fairly quickly. Looking
to the sectors, most remain strong. These include (but not limited to) energy,
gold, banks, financial, telecom and HMOs. However, there are some sectors that
could be stalling and/or showing early signs of distribution. These include, but
not limited to, the semis, selected insurance, retail and major drugs.
Considering all of the above, I still think the long side should be played as
long as last week’s lows in the indices continue to hold.
Looking to potential setups, Williams Energy Partners
(
WEG |
Quote |
Chart |
News |
PowerRating), in the strong oil & gas pipelines sub-sector (a), looks like it
has the potential to resume its uptrend out of a pullback. Use caution though,
since the stock can trade thinly.Â
Ride Out Corrections Or Stay On The Trail?
Before I left for vacation, I was discussing how a trailing
stop could have been used on Tol Brothers
(
TOL |
Quote |
Chart |
News |
PowerRating), a stock mentioned recently
(a). While I was away, the stock pulled back (b) and then resumed its uptrend
(c). There are two schools of thought on how to manage the position during a
correction like this: One, you can trail a fairly tight stop and be willing to
re-enter on the next pullback. Or, two, since you already have been blessed with
a nice profit, you can give the stock a little more “wiggle room” and
hopefully ride out the correction. I prefer the latter. This way (provided of
course, that you have already taken partial profits), what starts as a swing
trade has the potential to become a longer term winner.Â
In Case You Were Wondering…..
We won! We were first to finish (line honors) and first in
class.Â
Best of luck with your trading on Tuesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“….. ..I have read your book over a dozen times and I am still learning new things. Thanks for making me realize that I am a “method” man and I have since changed my ways increasing my success greatly….Thank you again for writing a terrific
book…..”
Anthony P.
