Protect Against Profit-Taking
by Sam Collins 10/07/09
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Yesterday, buy signals were triggered by many of our internal indicators with the fast and slow stochastic and momentum giving the strongest. And Moving Average Convergence/Divergence (MACD) made a big turn up and is still very oversold, telling us of a strong likelihood of a continuing rush to buy.
The measure of options volatility, the CBOE Volatility Index (VIX), fell 1.14 to 25.70 following a monthly high of 29.56 on Friday -- another indication that the rally will most likely continue.
However, if we get a blast out of the gate this morning with the indices close to the highs, traders may want to move some positions to cash and wait for another shallow pullback before putting it back to work. This is not to disparage the performance of stocks this week but only to protect against violent day-end profit-taking, which often accompanies low-volume, big-percentage up mornings.
However, a breakout through the high at S&P 1,060 would signal a quick run to at least 1,100. For longer-term investors it's best not to run against the grain by taking small profits. Stick with your friend, the trend, which is decidedly up, and ignore the wags on TV. Yesterday they couldn't party enough, while on Friday they were in the pits with predictions of massive gloom and doom while I focused on the oversold Relative Strength Index (RSI) and the trend that was and still is decidedly up.
Today's Trading Landscape
Earnings to be reported include: Acuity Brands (AYI), Alcoa (AA), Costco (COST), Family Dollar Stores (FDO), Helen of Troy Corp. (HELE), Kayne Anderson Energy Development Co. (KED), Lindsay Corp. (LNN), M&T Bank Corp. (MTB), Mercantile Bank Corp. (MBWM), Monsanto Co. (MON), Ruby Tuesday (RT) and Wolverine World Wide (WWW).
Economic reports due: MBA purchase applications, EIA petroleum status report and consumer credit (the consensus expects $-8.5 billion).
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