Stuck in a Trading Range

• Posted by Joe Fahmy
• on December 15th, 2009

The market continues its same pattern: rally for 2-3 days, stall for 2-3 days, selloff for 2-3 days, stabilize for 2-3 days, and then rally back for 2-3 days. The result is a three-month trading range between 2000-2200 on the NASDAQ Composite. So what do we do? The key is stock selection.

Stock selection is always important, but not so much when the market goes straight up because usually everything is rising. When the market is in a downtrend, it doesn't matter how strong a company's fundamentals are as EVERYTHING gets crushed. However, when the market is in a trading range, stock selection can really help you outperform. I am finding that even in a trading range, there are plenty of strong fundamental stocks breaking out of sound technical bases. The key is to take profits into strength (when the market is near the top of its range) and to pay attention to the stocks that are holding up well and showing strong relative strength (when the market is near the bottom of its range).

Eventually, we will break out of this range. In the meantime, my best advice is to keep trading positions light, try to expose your portfolio to the best performing stocks, and cut losses on your weakest ones. The market usually tells us which stocks to get rid of because they will be the ones that frustrate the heck out of you. The great trader Paul Tudor Jones says: "If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in."

With regards to the Fed Meeting on Wednesday, I think they will keep their language the same and not say anything to rattle the markets. Regardless of what they do, turn off the noise and pay attention to your stocks!

Some stocks that are holding up well and could see further upside if the market cooperates: $FFIV $ASH $JST $HGSI $DRWI $FIRE $RAX $WSM $TUP $GGB

As always, trade with stops! Good luck trading!

Follow me on Twitter @jfahmy

Tickers: ASH, DRWI, FFIV, FIRE, GGB, HGSI, JST, Paul Tudor Jones, RAX, TUP, WSM

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