Why I Think We Could Be In Correction Mode
Looking to the indices, on Thursday, the Nasdaq gapped sharply
higher on a “blow out” GDP report. However, it quickly found its high and began to
sell off hard. It found its low in early trading and chopped its way higher but
wasn’t able to make it back to new highs–the sellers returned late in the day.
This action has it stalling near its old highs and reversing to close poorly.
BTW, make sure you take advantage of “pop up”
openings: If you are long stock, and the indices are called to open up big time,
then feel free to “let ’em have it” (scale out of a piece).
The S&P also reversed at its old highs.
So what do we do? Last night (Wednesday), I was
concerned about how the indices would behave as their old highs are
approached. On Thursday, I got my answer–they stalled out at these levels (on
good news!). This suggests that we
could be in for some corrective action. Therefore, on the long side, you might want to
avoid new positions for now. And, if you haven’t already done so, now would be a
good time to scale out and tighten your stops on the remainder. On the short
side, begin looking for some transitional setups (e.g. First Thrusts, Bow Ties,
etc…) in order to play the potential correction. For the aggressive, you might
even look for a trade in the index shares.
Looking to potential setups, Jet Blue
(
JBLU |
Quote |
Chart |
News |
PowerRating),
mentioned Wednesday, still looks
like it has the potential to resume its recent meltdown out of a First
Thrust-like setup.
Best of luck with your trading on Friday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
P.P.S. Learn my best swing
trading strategy in my new interactive CD-ROM. Click
here now for details.