Why Sometimes The Best Action May Be No Action
Smoke ’em If You Got ’emÂ
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PowerRating), mentioned recently (a), has rallied
(b) nicely since then. When blessed with a swing profit like this, make sure you
lock in half and move your protective stop on your remaining shares to
breakeven. That way, barring overnight gaps, you essentially have a
“free” position with the potential of it becoming a homerun.Â
Looking to the indices, on Tuesday, the Nasdaq opened
weaker and sold off hard in early trading. However, it quickly found its low
then generally worked its way higher throughout the rest of the day. This action
has it reversing to close well after tagging the 1600 support level.
The S&P tailed down to take out support decisively but
reversed to close well and in the plus column. This action puts it back into its
recent trading range.
Looking to the sectors, Tuesday’s turnaround breathed new
life into many. Those such as retail and Internet that have trading sideways,
successfully tested the bottom of their trading ranges. However, in groups like
this, you might want to sit on your hands until you see if it can prove
themselves by breaking out to new highs. Biotech reversed but still ended
in the minus column. This action suggests that it remains vulnerable. Telecom
was strong. This action puts it near 52-week highs and suggests that its
longer-term uptrend remains intact. Regional airlines and restaurants remain in
longer-term uptrend.Â
 So what do we do? When the S&P took
out support, it was obvious that transitional shorts were the way to go. And
they worked–for a few minutes at least. Now that the indices are back above
support you now have to wonder if the long side should once again be played.
After all, the longer-term uptrend (so far) appears to remain intact. Here’s the
problem, after so many “fake-outs”, you have to be careful not
to “chase your own tail” while trying to find the “right”
side of the market. It could just be settling into a normal, summer trading
range type pattern (i.e. choppy). Therefore, especially with a shortened holiday
week, now might be the time to back off and let the market prove itself–one way
or the other. If it breaks out to new highs, then longs will be the obvious
play. If it rolls back over, then transitional shorts should be considered. And,
if it just reverses day after day and ends up going nowhere, then you might want
to go fishing.Â
No setups tonight. If the market can follow through from
Tuesday’s turnaround, then we could see longs setting up in the aforementioned
stronger groups.
Best of luck with your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“….. I still feel that your book is the best book on the subject and
offers me the best methodology for swing trading. In short, your method is outstanding….”
Michael M.
