Why You Should Honor Your Stops
Looking to the indices, on Friday, the Nasdaq opened stronger but
quickly found its high and sold off hard. It bounced back early in the morning
to recover about half its gains but traded back down to new intra-day lows early
in the afternoon. It then traded mostly sideways for the remainder of the day.
This action has it closing poorly. So far though, it only appears to be pulling
back in its uptrend (i.e. Double Top Knockout-looking).
The S&P was a bit choppier. It too sold off hard late
in the day but did manage (albeit just barely) to close in the plus column.
Looking to the sectors, on the downside, the homebuilders
were hit especially hard. It’s too early to tell whether this is just the
rolling corrective action that I spoke of recently or the start of something
bigger. The semis continue to lose steam. Biotech was able to stabilize in its
freefall but remains questionable. On the flat side, groups such as retail and software
remain in longer-term trends but continue to trade mostly sideways as of late. On the
bright side, the HMOs which have been hit hard recently, appear to have stabilized
and might have the potential to resume their uptrend out of a pullback. Ditto
for major drugs. Telcom remains in strong uptrend.
So what do we do? The indices remain below
their old highs, but so far, only appear to be pulling back. I am somewhat concerned
that the VIX is hovering near its lowest levels in nearly a year. However, so
far, it’s not stretched away from its moving average (i.e. not a sell signal).
Most sectors, with the exception of the “debacle de jour”, still remain
constructive longer-term. Therefore, all things considered, I think you can still continue to focus on the long
side. However, continue to honor your stops just in case your sector (and stock)
is next on the chopping block.Â
Looking to potential setups, Healthnet
(
HNT |
Quote |
Chart |
News |
PowerRating), in the
aforementioned HMOs, looks poised to resume its strong uptrend out of a pullback.
Best of luck with your trading on Monday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
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