by Dave Landry, Director of Research
TradingMarkets.Com
August 21, 2002
On Monday, the Nasdaq opened lower and then chopped sideways all day. This action (if you want to call it action) puts it right back at its 50-day moving average.
The S&P sold off to give back most of Monday's gains. It too has returned to its 50-day moving average.
So what do we do? The indices ended lower but didn't come completely unglued. And, overall, many sectors still appear to be shaping up. On the other hand (I know, give me a one-handed analyst!), the VIX remains stretched away from its 10-day moving average (i.e., a CVR III sell signal) and the market still remains overbought based on price and average advanced/decline readings. Therefore, there is probably some more corrective action ahead. Hopefully, this will be completed in a somewhat orderly fashion. I'm also anxious to get this late-summer choppy trading behind us. Based on the above, I'd would continue to keep it light.
Looking to potential setups, the Nasdaq Biotech Ishares (IBB) and biotech in general remains constructive -- forming low-level cup and handles. With that said, Enzon (ENZN), mentioned recently, "faked out" on Tuesday but still looks like it has the potential to rally out of a low-level cup and handle. However, I'd would wait for confirmation (above 2-3 bar highs) based on Tuesday's action.
Crossing Over
A few of you asked me to explain my recent statement that a crossing of a moving average does not "test out." This means that if you bought a stock/index/future every time it crossed above a moving average and sold (and went short) every time it crossed back below the moving average, you would lose money. Sure, there would be some great "well-chosen" times where this looks great (just look at the index charts at the top of this piece), but overall, the "chopping" back and forth around the moving averages would eventually chew you up.
Best of luck with your trading on Wednesday! |
