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[Figas]

How To Play An Overbought Market
Monday November 3, 6:24 pm ET
By Dave Landry


Smoke 'Em If You Got 'Em
Jet Blue (NasdaqNMJBLU - News), mentioned recently as a potential First Thrust short, has moved nicely lower since then (a). When blessed with such a nice quick profit, make sure you lock in a piece and move your stop on your remainder to breakeven. This way, barring overnight gaps, you position yourself for a potential homerun on those shares.


Looking to the indices, on Monday, the Nasdaq open firmer and after a brief dip, began to rally sharply. It found its morning high fairly quickly and then generally worked it way sideways to higher for the remainder of the day. This action has it closing well, closing at new highs for the year, and just shy of taking out its old highs.


The S&P put in a similar performance. This action puts it at new highs for the year

So what do we do? The S&P has broken out to new highs and the Nasdaq is not far behind. Further, there are some very strong uptrends across many stocks/sectors. However, the market is overbought at these levels. Although, overbought can always become more overbought, I don't think its prudent to initiate new positions (longs) at these levels. If the breakout in the S&P sticks, then we will see numerous setups on the first pullback. For now, on the long side, manage existing positions (trail stops and take partial profits) and stay with issues that can contra to the indices such as commodity related stocks. On the short side, you might want to continue to watch for transitional setups. Wait for entries though, since the tape remains so strong.

Best of luck with your trading on Tuesday!

Dave Landry

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