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On Tuesday, the Nasdaq open higher and chopped
around. Then, late in the day, it mounted an impressive Energizer
Bunny rally that kept going and going -- right into the close. This
action has it closing well and at multi-month highs.
The S&P also had a nice rally. This action is important, as just yesterday it was testing support.
So what do we do? As you know, yesterday the market held up well in spite of the whole world coming unglued. And today's impressive turnaround to the upside shows that the market truly doesn't care. So, why fight it? Focus on the long side, but at the risk of preaching, wait for entries and honor your stops.
Looking to potential setups, Mentor Graphics (MENT) looks like it has the potential to resume its strong uptrend out of a pullback.
Once again, the Biotech Holders (BBH), mentioned recently, still look like they have the potential to resume their uptrend. This is especially true if they can take out last Friday's pivot high.
Should I Stay Or Should I Go...Continued? -- OR -- A New Setup?
When we last left off, I was discussing whether you should exit or wait for your stop to get hit on trades that don't work right away. I discussed that in more recent times, I'm more inclined to wait to see if the trade will work. Well, so far, the Boston Scientific (BSX) example has not worked. However, it really hasn't done anything wrong yet either -- it continues to hold above its recent lows (a). Let's give it a few more days to see what will happen.
While analyzing the above (the great thing about writing this column is that it forces me to look at charts and think! Please, don't try this at home.*), I noticed that BSX really hasn't moved much lately on a closing basis (a). This action suggests that it was setting up as a low-volatility situation. And this is confirmed by a low 6/100 historical volatility ratio (b). Therefore, watch for a larger-than-normal move (in either direction) as volatility reverts to its mean. Because the stock is in a strong trend and pullback-ish in nature, my guess is that the "either direction" move will be a higher one.
Other
Thanks for all the contest entries. I'll announce the winners Thursday night. If you haven't already done so, make sure you read the fine print (see archives). There's a lot of useful information there!
Best of luck with your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
*Editor's note: For those new to this column, the joke flag is always flying. In this case, it appears Mr. Landry, through the use of sarcasm, is challenging you to look at charts and think.
".......Your instructions and techniques were the first that I have read that are easy to understand, follow and duplicate without needing a masters degree in mathematics, economics or finance like so many of other books and articles I have read on investing in the stock market. "Thank You" is such an understatement!!....."
Dave F.
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