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TradingMarkets.com
How To Turn A Swing Trade Into A Longer-Term Gain
Tuesday July 29, 6:11 pm ET
By Dave Landry


Staying With A Swing Trade For A Longer-term Move
To those new to this column, Healthnet (NYSEHNTNews) was first mentioned on 06/23/03 (a) and subsequently mentioned several times afterwards as a money management example. We discussed taking partial profits and trailing a stop higher. On 07/11/2003, we were discussing trailing a stop on a point basis--specifically 2-points below the closing price (b).

Subsequently, the stock came very close to this level but didn't quite hit it (c). It now appears that the longer-term return is resuming. Since it is hitting new highs, you now have two choices for a protective trailing stop: One, continue to trail it on a point basis higher (e.g., 2-points) or two, leave it where it is since it is below a support zone. For our purposes, we'll go with the latter. Should it continue higher, we'll re-evaluate the situation (and possibly go back to a point based stop).



Looking to the indices, on Tuesday, the Nasdaq opened firmer but quickly reversed and sold off hard. However, it found its low in early trading and began to rally. It was unable to make new highs in afternoon trading though. Finally, it worked its way lower going into the close. Said alternatively, it was all over the place.



The S&P put in a similar performance.

It remains in a choppy sideways trading range



Looking to the sectors, retail hit gave back most of Monday's gains. Although it remains in a longer-term uptrend, this action puts yesterday's breakout in question. The semis sold off hard. This action keeps them in a choppy wide-and-loose trading range. HMOs, health services-medical instruments and education manage to make new highs and remain in longer-term uptrends. Gold dropped again for second day in a row, but so far, only appears to be pulling back.

On the downside, those weaker sectors mentioned recently such as selected energy, utilities, and the homebuilders finished lower and appear to be resuming their downtrends. Internet appears to be stalling near recent highs and could be forming a top. And finally, software still looks like it has formed a top and could continue to rollover.

So what do we do? You really can't look a 'gift horse' in the mouth in this environment. If you have a short on and the market is dropping, you can't sit around and pat yourself on the back--you have to take profits and move your stop on your remaining shares to breakeven. Ditto on the long side during the rallies. The bottom line is there IS no follow through in this market. You have to be willing to take profits quickly and be willing to move on if stopped on the remainder.

Since we remain in a choppy trading range and the song remains the same: I still don't see any reason to get too aggressive on either side of the market. If you must trade, watch the stronger sectors (mentioned above) for potential longs and the weaker sectors for potential shorts.

Looking to potential setups, (yet again) Pulte Homes (NYSEPHMNews), mentioned recently and in the weak homebuilders (a), still looks poised to continue its rollover out of a pullback/big picture inverted cup and handle. Wait for an entry though--possibly below its pivot low (b), since it did a 'head fake' on Friday



Best of luck with your trading on Wednesday!

Dave Landry

P.S. Reminder: Protective stops on every trade!