After the fireworks at the open and lower stock prices, we've started to see some short covering come into the market. I make this observations based on some strengthening breadth in the NASDAQ-100 as it relates to yesterday.
After yesterdays close, only 5 of the 100 stocks that comprise that index actually showed a positive result for the day. Today we've seen that number improve to 22 stocks showing upside at one point or another during the session. This is a very short-term observations and in no way should be construed as a "buy" on the market.
How I would be using this type of short-term breadth strength is to lower some stops in bearish trades where the stock looks to be overextended on the downside, where a rally to resistance trend or retracement could seriously damage the bulk of the gain in the trade. Traders that will simply use a systematic approach to managing the trade will remove emotion from their trading and the stock will eventually tell you what to do. If a trade your holding has hit its bearish target, then simply lower your stop to that target (if the stock continued lower in a bearish trade).
Semiconductor stocks as represented by the Semiconductor Index (SOX.X) were noted as turning green in the past 90-minutes. There's been some damage done to some stocks in the group, but I have yet to notice any making new 52-week lows. One stock that I still feel a longer-term investor can be considering is a larger capitalized stock like Texas Instruments (NYSE:TXN) or even Intel (NASDAQ:INTC). Both of these stocks have recently been able to get above their bearish resistance trends on their point/figure charts.
One stock in the group that I did feel needed some defensive action that I had spoken positively on several days ago is Vitesse Semiconductor (NASDAQ:VTSS). I thought a 1/2 long position in the stock near $20 would be a good trade several days ago. Yesterday, in the "hot list" on OptionInvestor.com the action in that stock and the breaking of the $18 level had me alerting traders long the stock to immediately write the September $15 covered call to help hedge the downside risk to the $15 level. Today, the stock has seen further selling and now trades in the lower end of its retracement bracket (between retracement at $15.33 and $16.86). This stock has shown greater technical weakness that I originally felt it should and would not be adding to a full position at this time. Traders that did write a covered call on the stock should hold their group here. I would place a stop under the position at the $15 level for those that have written the covered call. Traders that are not holding a covered position should place a stop under the $15 level and either look to sell into a rally near the $18-$19 level (for shorter-term traders) and move on. The April 12th low for Vitesse was $15.12, the July 10 low was $15.33. I would be willing to give this stock time to prove itself, but a violation of the $15 level would have me saying goodbye to the stock. This was the lower end of the range that a trader was willing to take risk to. Stick with that plan, but don't deviate from it.