Why I’m Not Calling A Bottom
On Thursday, the Nasdaq gapped higher but initially pulled
back. However, it found its low in early morning trading and then rallied for a
solid trend day higher.
This action has it closing well and puts it all the way
back to the near the top of its recent trading range. This, which also
corresponds with its 50- and 200-day moving averages, could provide resistance.
The S&P also had a very impressive rally. The top of
its recent trading range(s) and 50-day moving average could provide resistance
here too.
So what do we do? Thursday’s rally is impressive. Is
it the bottom? I not so sure. If it came from a washout (i.e., extreme
panicky sharp sell off) from a doom-and-gloom situation, them maybe I’d go on
record as calling a bottom. However, in lieu of this, I think you have to take
it one day at a time. It should be interesting to see if the indices can follow
through and challenge (and take out?) the aforementioned resistance levels.
No setups tonight. If you took index trades, trail a stop
and look to take profits.
Playing (or Not Playing) Gaps
I’m often asked how to play opening gaps. Since I mentioned
the index shares as a potential trade Wednesday night
(see archive for my
reasoning), let’s look at how the
S&P Spyders
(
SPY |
Quote |
Chart |
News |
PowerRating) traded on Thursday.
Notice they gapped sharply higher on the open (a) but found
their high fairly quickly and began to sell off. At this point, you don’t know
whether you are dealing with an opening gap reversal or not. Then, later in the
morning, they formed a double bottom (c) and began to rally. At this point, if
you are aggressive, you can look to enter and place a tight stop below the low
of the formation (c). For the less aggressive, you’re better off waiting for the
opening range (a) to get taken out (b). For more on how to trade gaps, see
“Opening Gaps: Fade
‘Em, Trade ‘Em or Ignore ‘Em” and “Applying Discretion To Your Swing
Trades” under TM University.
Best of luck with your trading on Friday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
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