by Chris Curran
November 7, 2002
On Wednesday, the major indexes finished higher after election results pointed to a market friendly Republican-controlled Congress, and the FOMC delivered a surprise in the form of a 50-basis point rate cut. Good strength was seen in the Healthcare and Chip sectors, with weakness in the Banking and Biotech sectors. One irony in this FOMC situation is that while the market bulls are hoping that another rate cut will help to jump start the economy and the equities market, the cuts will hurt the Banking sector. The BKX is the most heavily weighted sector in the S&P 500. The NASDAQ Composite finished just under August's high at 1,427, with gap support at Friday's high at 1,361 and the 100-day MA at 1,312. The December S&P 500 contract closed just below September's reaction high at 927, with support at the 100-day MA at 896 and last week's low at 866.
Volume came in at a heavy 2.16 billion on the NASDAQ and 1.63 billion on the NYSE. Market breadth was positive, with advancers beating decliners by 21 to 12 on the NASDAQ and by 2 to 1 on the NYSE.
DAILY PATTERNS FROM OUR BASKET:
MAJOR INDICES
COMPX- Hanging man, cup
NDX- Hanging man, cup
SPX- Hanging man
Futures, ETFs, & HOLDRs
BBH- Hanging man at rising 20-day MA support
NDZ2- Hanging man
QQQ- Hanging man
SMH- Hanging man at falling 100-day MA support
SPZ2- Hanging man
Sector Indices
BKX- Hanging man, cup & handle
BTK- Hanging man, market structure high
DRG- Cup & handle/triple top breakout
HMO- Reversal at daily uptrend line support, testing rising 200-day MA resistance
OSX- Testing 200-day MA resistance
RLX- Inverted cup & handle
SOX- Reversal at falling 100-day MA support
XAU- Broke rising 200-day MA resistance, bear flag
For some insight into actual trading methods that we use to trade the QQQ, we've set up a page of actual trades and the reasoning behind them at Trading The QQQ and will be updating it a few times a week, as time allows.
Swing Strategy
Our strategy is to enter with an initial risk of 2-3% and a first profit objective of 5-6%. At 5-6%, we want to take profits on ½ the position, and then follow the rest with a trailing stop, preferably just under/over the previous day's lo/hi. This is nothing but a guideline. Market conditions and the stock's behavior should be considered at all times.
If a stock gaps significantly through the entry in the direction of the trade, wait for it to take out the first 15-minute high on long trades, or the first 15-minute low on short trades. This simple rule will ensure that there is follow-through, and will avoid many gap reversals that are so common.
DISCLAIMER:
This column is an information and education service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. Tradewinds is not a registered investment advisor. Tradewinds shall not be liable for any damages or costs of any type arising out of or in any way connected with the services of the company. Reprint or reproduction of this newsletter is strictly prohibited.
As always, do your own due diligence, and if you have questions, email me at Chris@tradewindsonline.net |
