Why I Still Think You Should Trade At A Reduced Size

July 23, 2003
Dave Landry

Looking to the indices, on Wednesday, the Nasdaq opened
firmer but immediately began to drop. It found its low early in the morning and
after bouncing, began to sell off again. However, it was able to hold its
intra-day lows and then rallied for the rest of the day.

This action has it closing well andÂ keeps it above its
prior breakout levels.Â

The S&P traded in a somewhat similar fashion but ended
flat on the day.Â

This action keeps it off the bottom of its trading
range/50-day moving average.

Looking to the sectors,Â in technology, the semis
extended their rally but still remain in a wide-and-loose trading range. Other
areas such as telecom and software failed to materially participate (many areas
actually ended lower) and remain questionable.Â Internet longer-term
remains in okay shape–Amazon’s earnings helped but the Chinese internets
sagged. Outside of technology, the one bright sector was the recently mentioned
education stocks. They blasted to new highs.

On the downside, those areas that have recently topped such
as the homebuilders and utilities appear to be turning back down and look poised
to continue their rollover. Ditto for selected areas of energy such as oil service.

Â So what do we do? When we have a strong
momentum market, I might have as many as 100 stocks on my list (which I will
then cull down to those that have the best potential). Tonight, I barely have a
dozen. During these times I have learned that I’m probably better off staying
out of the markets. And, at the risk of boring you to death, the action is
confirmed by the fact that the S&P remains stuck in its sideways trading
range (as do other indices, see Tuesday’s commentary). So I suppose the song
remains the same. You probably want to continue to keep positions on the light
side. Should you play, take a look at the sectors mentioned above that have the
potential to continue their rollovers.Â

Looking to potential setups, Dominion Resources
(
D |
Quote |
Chart |
News |
PowerRating),
mentioned recently (I promise to find some new stocks soon!!!) and in the weak electric utilities,
remains set up as
a pullback from lows.