Option Investor
Market Updates

Stock show some signs of firming

HAVING TROUBLE PRINTING?
Printer friendly version

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.

Jeff Canavan
Assistant Analyst
www.premierinvestor.net

Intraday Update Archives