|Entering trends on retracements is probably the lowest risk method of trading stocks. This not only ensures that traders do not catch the bottom or the top of the move but also gives close stop-losses, thus reducing the overall risk of the trade. The key element is to identify the main trend, confirm its strength using the ADX, and then use the overbought and oversold indicators to enter in the direction of the main trend during a countertrend move.|
|Figure 1: Daily chart of the Nasdaq.|
|Graphic provided by: Stockcharts.com.|
|Looking at the daily chart of the Nasdaq composite, the main trend is clearly up, and it has started a reaction. The 2000 level was key resistance on the way up and is likely to provide strong support. Also the 50% and the 61.8% Fibonacci retracements lie at the 2051 and 2000 levels. So taking the confluence of these two factors it would be reasonable to assume the Nasdaq composite will turn somewhere between 2051 and 2000. If 2000 breaks, then this might not be a correction -- a trend reversal might be in the offing.|
|The ADX remains strong on the daily chart. The daily stochastics (7,10) have reached the oversold level and will give a buy signal when the fast line forms a loop and moves over the slow line.|
Figure 2: Weekly chart of the Nasdaq.
How is this correction playing out in the weekly chart? The uptrend in the weekly chart appears to be intact as the breakout from the ascending triangle goes through its normal correction to the breakout line. The ADX is rising, which shows the strength of the uptrend. In an earlier article, I had mentioned the Nasdaq composite could reach 2700, and nothing has happened so far to change my view. As the Nasdaq composite completes its correction, the leading sectors and stocks in the index would also complete their corrections and move up further in the ongoing uptrend.
|Title:||Chief mkt strategist|
|Phone # for sales:||9871066337|
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