Why You Need To Watch For Transitional Patterns
On Friday, the Nasdaq opened firmer and rallied nicely in
early trading. However, it found its high by mid-morning and sold off hard
throughout the rest of the day. This action has it closing poorly.Â
The S&P stalled out too in early trading and sold off
hard. This action puts it right back to minor support.
Looking to the sectors, most were hit hard. As one would
expect, this puts many back to key support. Friday’s action also helped to
confirm the rollover in others mentioned recently such as broker/dealer, semis,
and biotech. One now has to wonder if previously strong sectors such as
homebuilders, HMOs, Internet and software will be next.Â
 So what do we do? On Friday, the indices
confirmed what I was concerned about within the sectors–stalling action. Yes,
the longer-term trend (a.k.a. the blue arrows) still points up but many groups
could be rolling over. Therefore, probably the best course of action is to look
begin nibbling on the short side. Transitional patterns (e.g. First Thrust, Bow Ties, Inverted Cup and Handles
etc..) will probably offer the best opportunities (vs. stocks in established
downtrends).Â
Looking to potential setups, on the short side, the Nasdaq
Biotech Ishares
(
IBB |
Quote |
Chart |
News |
PowerRating), mentioned recently, still appear to be in the process of forming a First
Thrust/Bow Tie formation (as usual, email me if you need rules to anything
mentioned in this column). Â
Best of luck with your trading on Monday!
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….”
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