Why You Should Be Concerned About The Action In The Indices
Looking to the indices, on Monday, the Nasdaq gapped higher
and after a brief dip, rallied nicely in early trading. However, it found its high fairly quickly and began to sell off. Then, after trading mostly sideways throughout
mid-day, it sold off again late in the day. This action has it closing poorly
and below its open.Â
The S&P also reversed after trading higher. This
action has it stalling at the top of its trading range/multiple tops.
Looking to the sectors, the intra-day reversal in the
Nasdaq has created a lot of “tails” throughout tech. This action had
sectors such as software and Internet flirting, but failing to hold new highs.
In fact, the semis were about the only area of tech that were able to hold on to most of
their gains.Â
On the downside, although the homebuilders finished higher,
they stopped short and reversed at minor resistance. This action suggests a top
could still be in place here. Selected insurance (e.g. accident and health) also
looks vulnerable. The utilities, especially electric, appear to have formed rounded tops and are now setting up as an inverted cup and handles. If you would
like more detailed sector analysis daily, see my service under
tradingsubscriptions.com.Â
So what do we do? The fact that the Nasdaq reversed
after trading higher is somewhat concerning. What’s more concerning is the fact
that the S&P stalled out at the top of its trading range. Therefore,Â
you might want to consider a short or two in the aforementioned weak sectors.
However, not matter what you do, you might want to continue to keep positions on
the light side until the S&P breaks out of its trading range (one way or the
other).
 Looking to potential setups, Dominion Resources
(
D |
Quote |
Chart |
News |
PowerRating),
in the weak electric utilities, looks like it has the potential to continue
lower out of a First Thrust formation (as usual, email me if you need the rules
for this pattern).
Best of luck with your trading on Tuesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“….. Your book on your swing trading method is succinct, straightforward, clear and above all useable. Thank you for the tools it provides. Please write more. You’re not just another writer, you’re a teacher who makes a difference…”
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