Why You Should Pay Attention To Both Short And Longer-Term Action

February 28, 2003
Dave Landry

On Friday, the Nasdaq opened slightly firmer and continued
higher in early trading. Then, early in the afternoon, it began to sell
off. However, it stabilized and chopped back and forth for the remainder
of the day. It did manage to close well though.

Continue to watch Tuesday’s pivot low as a potential support area. If
broken, it could likely test the February lows. On the upside, last week’s
high/the 50-day moving average remains potential resistance.

The S&P put in a somewhat similar performance but ended
closing poorly.

Once again, the 50-day moving average/the
bottom of a topping formation and trading range (a) could provide resistance
here. On the downside, watch Tuesday’s pivot low here too.

So what do we do? The good news is that the indices
continue to hold above minor higher lows. Further, many sectors have
formed a similar pattern (e.g., minor double bottoms). Also of interest is the
fact that the semis have managed to cross their 50-day moving average/appear to
be attempting to break out of their short-term trading range. However, in spite
of the above, the longer-term trend still remains down. Therefore, continue to
focus on the short side but keep it light due to recent choppy action and the
fact that we remain in a fickle news-driven environment. On the long side, stick
with selected areas of energy since they can trade contra to the overall market.
And, once again, continue to use the news to your advantage: On the rallies, look for potential candidates to short.
On the sell offs, look to lock in profits and tighten stops on existing shorts.

Looking to potential setups, Ecana Corp.
(
ECA |
Quote |
Chart |
News |
PowerRating), in the
strong independent oil sector, looks like it has the potential to continue
higher out of its first pullback since breaking out of a high-level base.

On the short side, CBRL Group
(
CBRL |
Quote |
Chart |
News |
PowerRating), in the generally
weak restaurant sector, looks like it has the potential to continue its sharp
transition down out of a pullback.