Why Monday’s Rally Suggests That The Bull Move Remains Intact
To those new to this column, welcome! (If you are a
longer-term reader, you might want to skip or skim the next few paragraphs) My
style is momentum based swing trading. I look for patterns that
have the potential for short-term gains with the potential of becoming a
longer-term winner. I believe one of the truest stock markets adages is
“the trend is your friend”. However, this doesn’t mean that I buy or sell short a stock just because its trending. You’re better off waiting
for a correction and then some sort of sign that the trend is resuming. Said
another way, I look for mostly for pullbacks (and pullback related patterns) and
an entry. Setups don’t exist in a vacuum though. Since a rising tide tends
to lift all boats, the sector action and market itself should also agree with
the stock’s trend. Finally, I realize that all of these concepts are
worthless without proper money and position management. This includes using
protective stops, trailing stops and taking partial profits.Â
This column reflects the “top down” approach
described above. I first look at what occurred in the trading day in the
indices. I compare this with short-term support/resistance and the longer-term
trend. I also will usually point out if any of my patterns or market timing
systems are triggering at this point. Sector action, when applicable, is
discussed next. I then discuss a general game plan based on what I’m seeing in
terms of market action, sector action and the setups I’m seeing in the stocks
themselves. Finally, I usually show one or two stocks which reflect the above
analysis. Also, on occasion, I’ll show money management and position management
learning examples based on stocks mentioned recently in this column.
Here at TradingMarkets.com, I have numerous articles and
column archives, several forums, a book, and a video that describe in detail all
of the above. Check them out! I also personally answer each and every one
of my emails (eventually!). So feel free to email me if you have any questions.
Sincerely,Â
Dave LandryÂ
On Monday, the Nasdaq opened firmer and after a brief dip,
began to rally. Then, after drifting mostly sideways, it resumed its rally late
in the day. This action has it closing well, just above last Thursday’s
pivot highs (minor resistance) and at new closing highs for the year.
The S&P put was even more impressive. It cut through
last Thursday’s pivot high and managed to take out its prior high for the
year.Â
So what do we do? The fact that the indices were
able to rally to make back all of Friday’s losses (and then some) is a positive.
Nervous longs who were shaken out are now faced with the decision of getting
back in or watching the rally leave them behind. And, eager shorts, who were
quick to call a top last week, are now faced
with losses. Looking to the sectors, nearly all were up nicely on Monday. This
action keeps most in strong uptrends and puts many such as banks, telecom,
drugs, HMOs, and homebuilders at or near new 52-week highs. Other sectors that
were beginning to look questionable such as the semis and to a lesser extent
software also bounced back nicely on Monday. Therefore, once again, continue to
focus on the long side. However, make sure you are honoring your protective
stops, trailing stops and taking partial profits when offered.Â
Looking to potential setups, Encana
(
ECA |
Quote |
Chart |
News |
PowerRating), mentioned
Friday (originally mentioned in late May(a) ) and in the strong independent oil & gas sub-sector,
looks like it has the
potential to rally out of a pullback. Talisman Energy
(
TLM |
Quote |
Chart |
News |
PowerRating), in the same
sub-sector and also mentioned Friday, looks like it has the potential to rally
out of a Double Top Knockout-like formation (email me if you need the
rules).
Icos
(
ICOS |
Quote |
Chart |
News |
PowerRating), in the strong drugs-other sub-sector (a),
looks poised to rally out of a pullback/micro-cup and handle-like
formation.Â
Best of luck with your trading on Tuesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“….. A long overdue note to let you know I am re-reading your book for the third time; I have a library
full, but I keep returning to yours, because ultimately its the clarity and relative simplicity that appeals to me; And it has contributed to being more successful in my
trading. I am becoming more convinced every week that its more important to implement a
simple, but sound strategy in an accurate, disciplined way than to stuff my head with hundreds of different
strategies. These strategies might all have merit, but it causes information
overload and just muddies the water for me; anyway, thanks a lot, keep up the good
column;…”
Richard L.
Â
