Why I Think We Could See More Selling

April 16, 2003
Dave Landry

On Wednesday, the Nasdaq gapped sharply higher on the open
but quickly began to sell off. It made another rally attempt in early trading
but found its high and generally sold off for the remainder of the day.

This action has it stalling out near the top of its trading
range and suggests that it could return to the bottom of the range/200 & 50-day moving averages.

The S&P also stalled out (but more quickly) as it
approached its recent highs.

The VIX dropped (again) to hit is lowest level since last
summer. It then reversed to close above its open. This action sets up repeat CVR-III and CVR III-Modified
sell signals.

So what do we do? The fact that the indices stalled out
after approaching the top of their trading ranges combined with the continued relatively
low VIX levels suggests that the market may have additional downside. This is
further confirmed by poor action in most sectors–even recently
strong sectors such as such as generic drugs and health care plans were hit
especially hard.

No setups tonight. We could see transitional setups (Bow
Ties, First Thrusts, Inverted Cup and Handles, etc.) soon in areas such as
drugs, biotech and health care plans.

Smoke ’em If You Got ’em Part 2

Recent “smoke ’em if you got ’em example”*
Anthem
(
ATH |
Quote |
Chart |
News |
PowerRating) gapped nicely higher with the rest of the market on Wednesday(a).
However, it quickly reversed and began to sell off. When blessed with a nice
windfall, especially in a questionable environment (indices in a trading range
and stalling at prior highs, low VIX, overbought market, etc.), make sure you
lock in a piece–feed the ducks while they are quacking. Also, make sure you
tighten your stop to at least breakeven(b).

As you can see, without money management, this nicely
profitable (overall) trade could have turned into a potential loser. Practice
proper money management, especially in this environment!

For more on money management, see my articles under TM
University. Or, better yet, go to www.tradersgalleria.com
and add anything with “Dave Landry” on it to your shopping cart.