Why You Should Not Buy — Yet
Looking to the indices, on Thursday, the Nasdaq gapped to
new highs and began to rally nicely. However, it found its high by mid-day and
began to drift lower. The selling accelerated in late day trading. It did manage
to bounce going into the close though.
The S&P put in a similar performance.
So what do we do? The fact that the indices
tailed to new highs but reversed suggests that Thursday’s breakout was a false
one. This, combined with the fact that the market remains overbought (see recent
commentaries), suggests that the market is still prone to correct. Of course
this doesn’t mean that it can’t go higher. The market can do whatever it wants.
However, buying into an overbought market is normally not a prudent thing
to do. Therefore, wait to see if we can get a real breakout and then look
to position on the first pullback. On the
short side, for the aggressive (or those looking to hedge longs), continue to look for a
possible trade in the index shares should they show continued signs of
reversing.
No setups tonight.
Best of luck with your trading on Friday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“….Dave Landry has written the best book on swing trading out there. I
have read hundreds of books on trading and what makes this book
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methods. He leaves nothing out! It’s almost like a master chef giving you all his best recipes. This book provides the perfect recipe for low risk, high
probability setups. The book covers everything it takes to be a successful trader with special emphasis on money management, trading psychology,
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David Steele
