Option Investor
Market Updates

How do I make money Part II

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How about taking some profits in American Power Conversion (NASDAQ:APCC)? Aggressive traders may be saying goodbye in our bullish play in APCC at $15.50 here at $17.12. This represents a 10% profit in 5-days! That's better than many mutual funds did in 2000. If you played the option, you're doing even better!

American Power Conversion Chart - 60-minute interval.

Aggressive bullish traders may have booked some profits today in APCC when the stock broke below the $17.25 level. With the NASDAQ off 3% we're not surprised by the weakness in the least. Traders that think the NASDAQ will turn around soon are still snugging up stops at the 50-period MA $16.38 or upward trend near $15.88. If the NASDAQ continues to weaken, expect the same here. If you're happy with current profits, exit the trade and book the profit!

Quantum Corporation Chart - 60-minute interval.

Yesterday I highlighted a bullish trade in shares of Quantum Corp. Hddg (NYSE:HDD). Bullish traders that entered the stock near $12.13 - $12.50 are hanging tough. One of the reasons we like to buy technically strong stocks are days like today. We never know what the future will bring, but if we're buying technically strong stocks, we're putting odds in our favor. If technology stocks come under continued pressure, we'll probably end up exiting the trade with a rather small loss on this stock. Those losses should be more than offset by the profits in APCC. We'll stick with HDD until our stop at $11.25 is triggered, just below the 50-period MA.

NASDAQ Composite Index Chart - 60-minute interval.

The NASDAQ Composite has pulled back to our 50-period MA at 2,770 and actually dipped below it. We'll be watching this level closely. Next level of support is near 2,725 and if that's broken then the 2,600 and the 200-period MA might be support. ANY bullish trades entered in four-lettered stocks basically believe this index will hold the 2,725 level and have 2,900 as their minimum target. We've seen an upward trend get broken then act as resistance. Now we're seeing the 50-period MA tested. Don't let the market beat you over the head with its skillet. There's weakness in the NASDAQ and bullish traders shouldn't be expecting a 25% run higher from current levels. I'd be lowering my expectations short-term on bullish trades. Stick with technically strong stocks near close stopping points, just in case the NASDAQ does see 2,600.

Are you holding technically strong stocks?

If the NASDAQ Composite is trading at its 50-period MA on a 60- minute chart, what kind of stocks are you holding long? Are they trading above their 50-period MA's? APCC and HDD are, and at least we have a chance of making money. If technology stocks turn higher, chances are also in our favor that APCC and HDD might lead the advance, as they are technically stronger. Right now is a great time to assess your holdings. If they look weak, think about turning and shorting them, especially if the NASDAQ continues to decline, but don't short a stock in an up-trend. If the Fed cuts rates next week, you don't want to be shorting stocks in up-trends!

Jeff Bailey
Staff Analyst

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