Why You Should Continue To Exercise Caution On The Long Side
On Tuesday, the Nasdaq opened lower but quickly reversed to
rally for a solid trend day higher.
This action has it closing well and breaks it out of its
trading range.
The S&P put in a similar performance.
It too broke out above its trading range/resistance (around
900).
The VIX hit new 10-month lows again. Its high
remains below its 10-day moving average and it also closed more than 10% below
that average. This action forms a repeat CVR-III sell signal.
Looking to the sectors, many sectors hit multi-month highs
on Tuesday. These include (but are not limited to) homebuilders, broker/dealer,
banks, defense, insurance, semis, consumer non-durable, computer hardware,
retail and catv systems.
So what do we do? I’m constructive towards the market based
on the action in the indices and the sectors. However, Tuesday’s breakout has
the market even more overbought. Further, the low and stretched VIX still
suggests that we are due to correct–remember, this indicator can have long lead
times. Therefore, I think the best thing to do would be to wait for the
correction and then look to get long stocks in some of the aforementioned
strong sectors. For the aggressive, once again, you might look to play
an opening gap reversal in the index shares, should they gap higher on the open
and then show early sides of reversing.
No setups tonight. Remain patient. We will likely see a
plethora of setups on the next correction.
Hey Dave, I Thought We Were Going To Correct ‘Cause The
VIX Was Low….
Hey Dave, I’m Frustrated That I Missed The Rally…..
As mentioned above, the VIX can have long lead times.
Further, buying an overbought market is not prudent. Yes, psychologically you
have to live with the fact that the market can take off without you (the market
can do ANYTHING). However, I can assure you, statistically* the market always
corrects, especially when indicators are signaling.
Trade only when the odds are in your favor.
Best of luck with your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“….. your book is very clear and easy to follow. I think it is
helping me to improve….”
Judy C.
*Statistics are worthless, 70% of all people
know this. (Homer Simpson)
