Just over a week ago, I walked traders through a process of setting up a trade. The stock I used was shares of VeriSign (VRSN) which I see is today's play of the day on OptionInvestor.com. Readers will remember how we were looking to get bullish near $65.38 on January 8th, but the market didn't cooperate that day until late in the session when shares of VRSN staged a turnaround. Today, I'd actually be looking to short shares of VRSN with the technicals that have developed this morning!
VeriSign Chart - 60-minute interval.
One of the advantages a trader has over an editor is that they can view the markets the following morning and act accordingly. I'm not about to say that VRSN was a "short" as the trade was being written up over the weekend. If the NASDAQ Composite (COMPX) had opened 50-points higher this morning, I'd be willing to bet that shares of VRSN would have participated to the upside. However, as a trader, this morning's break of short-term upward trend right near the open would have had bullish traders scratching this one from their play list, but bearish traders fairly active in the stock with a play to the downside. Traders that do like the stock long might look for the stock to pull back near $75. This $75 level would also be a bearish traders target to the downside. Traders will note that the 50-period MA (thin blue) is right near $75 along with our "old" downward trend. Traders might also remember our light blue horizontal level. This was a level we put in place back on January 4th, when we were setting up a bullish trade at that time. The horizontal light blue was a level that we set our "alert" that the stock was pulling back and nearing our targeted entry point of $65.38. Again, that trade was never run as we had set other criteria for a bullish trade to be met in the MSH.X and that index didn't hold together either. Traders that did continue to follow the stock and used many of the "scenarios" we had set up ahead of time may have played VRSN from $72 to our horizontal pink level of resistance at $84. Even if those bullish traders got out a little early at our initial target, they booked a nice profit. This stock has proven in the past that it will pull back and that gives the patient trader that understands broad-market trend an advantage on those that just read the "play of the day" and buy it without observing the broader market. Let VRSN pull back here and remove some risk from the trade. We'll follow VRSN over the next couple of days, as many readers have wanted me to provide intra-day updates on the "play of the day" on OI.
NASDAQ-100 Index Tracking Stock - 60-minute interval.
Traders should be alert that the QQQ's have broken our short-term upward trend just recently and those traders that traded bullish in this security back on January 9th at $58.50 should be locking in gains here. The horizontal pink lines are levels we used for a trailing stop. Traders that will consistently book 4.7% profits to their account in the QQQ's can build that account over time. Stay disciplined and don't get greedy. In time, you'll be able to trade 1,000 shares, but you need to build the account first. If you create bad habits with 100 share lots, those bad habits will come back to haunt you "if" your account grows in size.
NASDAQ Composite Index Chart - 60-minute interval.
Now that we've talked about a stock (VRSN) and a sub-group of the NASDAQ, the QQQ's, lets take a look at the NASDAQ Composite Index (COMPX). Our upward trend (A) is still intact, but the COMPX has broken below its 200-period MA (thin red) and this is an early alert to weakness. How many times have we seen this set of events in the past several months? I've lost count. At some point this will be a "false alert", but so far the trend has been for lower stock prices in the short-term. If I'm long stocks and profitable in those positions, I'm snugging up stops. Traders can monitor VRSN, the QQQ's and the NASDAQ and get a pretty good feeling that there is some weakness currently. If the NASDAQ Composite (COMPX) is able to keep trend (A) intact today and actually break above our downward trend (thick red) shares of VRSN should be an excellent stock to be looking long.
Dow Industrials Chart - 60-minute interval.
The Dow Industrials (INDU) are at their sessions high and we'll be watching the 10,600 level closely and level (C ). Level (C ) has been our confirmation level for a break in trend (A) and we'd expect this level to provide some resistance. We'll also be watching the 50-period and 200-period MA's as resistance levels. Recently our longer-term upward trend (B) was violated to the downside, but level (D), which serves as confirmation of that break, has yet to be tested.