Why The Best Action May Be No Action
Looking to the indices, on Thursday, the Nasdaq opened
slightly firmer but quickly found its high and began to sell off. It worked its
way back by mid-day but the selling resumed in early afternoon trading. In fact,
it accelerated going into the close.
The S&P put in a similar performance. This action has
it touching its 50-day moving average.
Looking to the sectors, out of the the 239
sectors/sub-sector I follow, only a few finished up–but not by much. The
continued slide puts and/or keeps many areas in question. This includes
virtually all tech including the semis, software, telecom, and biotech. Major
drugs also appear to have lost their recent up thrust from lows momentum.
Outside of tech, most cyclicals appear to be breaking down. Defense continues to
slide. Retail, although its slide appears to have slowed, also looks vulnerable.
About the the only two sectors (other than gold which happened to get hit today)
that are “hanging in there” (longer-term) are broker/dealer and
Internet. However, I don’t think this in and of itself is anything to write home
about.
So what do we do? The VIX is now
stretched more than 10% away from its 10-day moving average. This action,
combined with the late day sell off suggests a bit of a panic. At the least, it
doesn’t appear that anyone wants to take stocks home. Further, the market is
oversold based on short-term and longer-term advance/decline readings,
average TRIN readings, and quite simply price itself. Therefore, for the
aggressive, there could be a bounce play soon in the indices. However, don’t be
a hero just yet. Wait for market timing signals and ideally, some sort of
reversal. On the short side, I think the market is too oversold to consider new
shorts. For those looking for setups, remain patient. On the first bounce,
we could see quite a few transitional setups.
No setups tonight.
Best of luck with your trading on Friday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“….I just finished reading your book for the 3rd
time…the book has paid for itself trade after trade…thanks for a straightforward
swing trading manual! …”
Steve T.
