What to look for on Friday…

• Posted by Joe Fahmy
• on February 19th, 2010

I believe in the phrase "stick to what you know." I am a stock trader and not an economist, so I try not to comment much about the Fed's actions. I prefer to "turn off the noise" and focus on the price action of leading stocks.

Over the past few days, I mentioned to remain patient before aggressively jumping back into the market, as stocks need time to build proper bases. Part of the base-building process involves volatility and shakeouts, which is why I never recommend buying stocks until they complete a sound base pattern. $CLW is a perfect example of this point.

The futures are indicating a gap down on Friday morning. My feeling is that the market will shake off the Fed's discount rate hike; however, it might not be right away. I am basing this opinion on the number of breakouts I have observed over the past few days, and the number of stocks looking to complete the right side of their bases over the next 2-4 weeks. In my humble opinion, if the market was going to collapse right here, stocks wouldn't be "setting up" technically and looking like they want to go higher soon.

The main thing to look for on Friday is relative strength. If the market gaps down, wait for the selling pressure to stabilize and pay attention to the stocks that are holding up well. For example, if the NASDAQ is down 30 and you think it might rally back up, look for the stocks that are green or barely down on your screen with the theory that if they survive a morning sell-off, they will most likely go higher if the market recovers later in the day. Again, this theory only works well IF the market recovers. If the selling pressure does not stabilize, I recommend waiting patiently and not adding to long positions.

Another possibility is that the market sells off for 2-3 days before the downside pressure stabilizes. If this happens, I suggest waiting to see which stocks hold up well over the next few days and then looking to add positions next week. Either way, my best advice is what I have been preaching for the past week: Be patient, keep positions light, and cut losses on your weaker performing stocks.

My current watch list includes: $BEAV $GMCR $CLNE $DNDN $HGSI $PAY $VPRT.

Please keep in mind that the purpose of this blog is to help people with idea generation. If you trade some of these stocks, PLEASE, PLEASE, PLEASE use stops. In other words, if some of these stocks turn against you and the market doesn’t cooperate…protect your portfolio! Thank you. Good luck trading!

Follow me on Twitter @jfahmy

Tickers: BEAV, CLNE, CLW, DNDN, GMCR, HGSI, PAY, VPRT

blog comments powered by Disqus