by Dave Landry, Director of Research
TradingMarkets.Com
July 12, 2002
On Thursday, the Nasdaq opened lower and sold off. It then quickly reversed and began to trade higher. However, before you could shout "rally", it reversed to make new 5-year lows. The good news is, it reversed for real after tagging these lows. This action has it closing well and suggests we are in bounce mode.
The S&P also reversed nicely after tagging multi-year lows.
The VIX reversed after hitting its highest levels since September 11th. More importantly is the fact that this reversal comes from a "stretched" condition (measured as 10% or more away from its 10-day moving average and it's low is greater than that average). In other words, tonight we have a CVR-III Modified buy. This system has shown to be 70% correct in predicting a reversal in the market (75% on the long side) over the next 3-7 days. No guarantee, just a probability (and "statistics are worthless, 75% of all people know that." Homer Simpson).
So what do we do? The aforementioned VIX combined with a TRIN Reversal buy signal plus an oversold market reversing from multi-year lows suggests we are in buy mode. This does not mean you should run out and buy individual issues. If you are nimble, play it with the index shares. On the short side, continue to scale out of shorts and tighten stops. And, this might be a good time to start putting together a list of stocks in strong downtrends that could be worth shorting after this bounce.
Looking to potential setups, Electronic Data Systems (EDS), in the weak software: information service sector, still looks poised to resume its meltdown out of a Trend Pivot Pullback. Just wait for entries in light of the above.
Email Of The Day
Being a bear presents its difficulties. At cocktail parties, I can't really talk about all the money we bears are making, as that upsets most of the other guests. At the country club, when stockbrokers blame this bear market on "those ***!! daytraders" -- or swing traders, if he knew or understood what we really do-- I have to remain quiet, and remind myself that it's only a game, and we are winning. Thanks for making my trading life more simple and profitable.
Gerald C.
Thanks!
Best of luck with your trading on Friday! |
