Should You Buy Because The Indices Are At New Highs?
Monday December 29, 6:00 pm ET
By Dave Landry
Looking to the indices, on Monday, the Nasdaq (NasdaqSC:^IXIC - News) rallied sharply in early trading. Then, after drifting sideways to higher for much of the day, it resumed its rally going into the close. This action breaks puts it at new highs for the year and breaks it out of its trading range.
The S&P also put in an impressive rally.
So what do we do? Monday's performance was impressive--it was a broad-based rally throughout virtually all sectors. However, I would exercise caution for a few reasons: First, the indices are overbought. Of course, this doesn't mean that overbought can't become even more overbought. It's just that buying an overbought market is usually not prudent. Second, many of the strongest areas remain cyclical stocks including chemicals and commodity related stocks such as energy and metals & mining. Gold appears to making a comeback too. Third, my database generated very few meaningful setups tonight. As I've said before, most of the time, this indicates that conditions are not favorable for trading. Therefore, manage existing positions (e.g., trail stops and take profits if offered) vs. establishing new ones.
No setups tonight. Be patient, if all sector continue to perform as they did on Monday, we will see numerous setups on the first pullback.
Best of luck with your trading on Tuesday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
P.P.S. Trading strategies like this can be found in my new book at www.tradersgalleria.com. |
