Why It Pays To Watch The Charts
On Friday, the Nasdaq opened lower and sold off hard. Then
after some mid-day drifting, it resumed its selloff late in the day. This
action has it closing poorly and keeps it well below its 50-day moving average.
The S&P put in a similar performance. It remains well below its 50-day and 200-day moving
averages. Further, this action has it breaking below the 870 support level.
As mentioned last night, now that this is broken,
the October lows could be the next stop.
The carnage is widespread. As mentioned recently, many of
the recently strong sectors are selling off hard after making double tops.
Here is telecom:
Internet:
And software:
Non-tech areas such as broker/dealer have also been hit
hard as of late.
The semis appear to be breaking down out of a big picture
“topping” formation (head-and-shoulders like).
Other sectors include (but not limited to!): energy
and defense stocks (in spite of the war jitters), banks, retail and utilities.
About the only sector in an uptrend is the generic drug, and they too are
starting to correct.
The good news (for the longs) is that the VIX is stretching
away from its 10-day moving average. This action forms a CVR-III (a pattern I
co-created with Connors). It is a great indicator for predicting turns but can
often be a little early.*
So what do we do? The fact that the market is so
oversold really makes it too late in the cycle to establish new shorts.
Therefore, wait for a bounce before looking to play the downside. As mentioned
recently, you might want to focus mostly on stocks that are rolling over from
higher levels since they could be viewed as source of funds. For the
aggressive, look to play a reversal (bounce) in the index shares should they gap
lower on Monday and then show early signs of reversal.
No setups tonight. Wait for the next bounce.
Best of luck with your trading on Monday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
*Less aggressive players may want to wait for a
CVRIII-Modified. Email me if you need the rules.
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