Worth Waiting?

October 19, 2001
Dave Landry

On Friday, the Nasdaq probed lower but found its
low by early afternoon. It then rallied for a nice trend higher to
close well.Â

The S&P put in a similar performance.

So what do we do?Â
I’m encouraged by Friday’s action. The fact that the market found its
low and rallied to close well is a positive. This is especially true
when you consider the fact that weekends in this environment can bring
uncertainty. However, I still see no reason to get too excited just
yet. I think we’re close enough to the 50-day moving average to wait
before getting too aggressive on the long side. For now, I still think
there is room to play both sides of the market. And, as I’ve been
preaching lately, keep it light and honor your stops.

Looking to potential setups, Raytheon (RTN),
mentioned recently, still looks like has the potential to rally out of
a pullback.Â

XL Capital (XL),
in the strong insurance sector ($IUX.X),
looks poised to continue its melt up out of a pullback.

Smoke ’em If You Got ’em

On Wednesday, I mentioned Americredit (ACF)
as a potential short. The setup triggered on Thursday around the 23.70
level. On Friday, the stock gapped lower (a) and dropped quickly down
to the 19.50 (b) before reversing. When blessed with such a strong
move in your favor, make sure you lock in a piece.

Example–Follow Up

On
Wednesday (see archive), I discussed the fact that Imclone Systems (IMCL)
was a low–volatility
situation. And, in these situations, you never know whether the stock
will break higher or lower as volatility reverts to its mean.
Therefore, I like to put together a game plan to determine probable
direction. In this case, the stock was in a strong uptrend and had
pulled back. This suggested that the move would be higher. Notice
today that the stock appears to be breaking out to the upside as the
volatility is reverting to its mean.Â