Why You Should Continue To Trade At A Reduced Size

July 25, 2003
Dave Landry

Hey Dave, Whatever Happened To Healthnet?

To those new to this column, Healthnet
(
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PowerRating) was first
mentioned on 06/23/03 and subsequently mentioned several times afterwards as a money
management example. We discussed taking partial profits and trailing a stop
higher. When we last left off, 07/11/2003, we were discussing trailing a stop on
a point basis-specifically 2-points below the closing price(a). Since then, it
came very close to this level but didn’t quite hit it (b).Â

Looking to the indices, on Friday, the Nasdaq opened flat
but soon began to slide. However, it quickly found its low and then rallied for
a solid trend day higher.

This action has it reversing at its prior breakout levels
and closing well.Â

The S&P put in a similar performance.

This action has it reversing right at support (the bottom
of its trading range) and its 50-day moving average.

Â So what do we do? As I’ve been saying, during this recent chop, the
market looks good on up days–reversing at support (and looking like it could be
resuming its longer-term uptrend) and bad on down days–testing support (and
looking like it could roll over). So, now that we’ve had an up day, especially
when you consider that the S&P reversed at support, it looks like it has the
potential to continue higher. Not so fast though. This market seems to change it
mind on a daily basis (and often an intra-day basis). Therefore, I see no reason
to get too bullish until it can prove that it can go up for more than one day in
a row and break out of its trading range. Also, true there’s a seasonality
factor here, but you can’t completely ignore the fact that the VIX has hit is
lowest level in over a year and (more importantly) is beginning to stretch away
from its moving average. Therefore, considering the above, I think keeping
positions on the light side is still probably your best bet.

Looking to potential setups, Pulte Homes
(
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PowerRating),
mentioned Thursday and in the
weak homebuilders (a), still looks
poised to continue its rollover out of a pullback/big picture inverted cup and
handle. Wait for an entry though, since it did a “head fake” on
Friday.