Why It Pays To Study Stocks Within The Sectors
On Wednesday, the Nasdaq gapped lower and continued lower
in early trading. It then drifted and chopped for the remainder of the day. This
action has it closing poorly, below recent lows and right at its 50-day moving
average.
The S&P also sold off hard in early trading and then
essentially chopped and drifted for the remainder of the day. This action puts
it well below its 50-day moving average.
So what do we do? On Tuesday night, I discussed “looking under the
hood”–studying the stocks within the sectors (see below for more details
on this). I noticed that “many individual issues had already broken down and/or looked more
vulnerable than the overall sectors”. And, “based on this action, transitional shorts (e.g., First Thrusts, Bow Ties, Inverted Cup &
Handles etc.) may offer the most opportunities.” Well, blind squirrel finds a nut! This actually worked on Wednesday. So what do I do for an encore? Well,
even with Wednesday’s sell off, I still think that many sectors and the market
itself have additional downside since they are just breaking below recent
lows/moving averages. Therefore, continue to look for shorting opportunities. On
the long side, focus on gold stocks (see below). However, once again, no matter what you do, keep it light as the end-of-year games
will likely continue.
Looking to potential setups, after just one sharp down day,
the gold stocks turned back up.
Considering the above, Newmont Mining
(
NEM |
Quote |
Chart |
News |
PowerRating) looks like it has the potential to continue its
sharp uptrend out of a Trend Knockout.
Checking Under The Hood
Based on last night’s commentary, I received several
questions about how I look at stocks within sectors. The process is fairly straightforward:
I run a simple scan that give me virtually all of the patterns I trade (and then
some). This scan produces a LOT of charts but a) I like looking at charts and b)
it gives me a feel for what’s going on within the market. Once I make a watch
list, I then “hot key” to sector and sort the stocks by price per
share. I then quickly tool through the top 25-50 (or more) stocks to get a
“feel” for what’s going on within the sector. The “look under the
hood” accomplishes two goals a) if the individual issue action is
confirming, then I will either go with the setup–or–may find other stocks
within the sector worth trading or b) if the action is not confirming, it serves
often serves as an early warning sign that the sector is due to turn. Email me
on this if you need more help/details.
Other
FYI, for those who have been asking me when the video will
go on sale:
It’s on sale (20% off) until Monday December 23.
Shipping is free and overnight.
Best of luck with
your trading on Thursday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“…I bought your book last month and
I loved it. Your techniques are very easy to understand….”
Francisco V
Brazil
