Recognize a Change in Direction

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Yesterday was the fourth day of the rally and the third day in a row closing above the 200-day EMA. Not surprising to have a neutral day such as yesterday in front of the jobs report due out at 8.30 a.m. this morning. Hopefully, you will get the usual overreaction that always creates good trading opportunities. The S&P 500 is now up 4.7% from the .618 retracement level of 1325 in four days, which is an excellent reflex trading rally. We will let the Generals tell us whether it will be more than just a lower high rally. The brokerage firms are doing their best to keep the ball in the air as they race to each sector that has had a correction, such as retail names Wal-Mart (WMT | Quote | Chart | News | PowerRating) and Home Depot (HD | Quote | Chart | News | PowerRating), and pump the stocks with their hype. 

Remember, the game is growth to value, back to growth, and keep all sectors moving up on a rotation basis so the major averages will flourish. So far, they're doing an excellent job. The volume ratio has been good during this rally as it has averaged 63.7. This ratio is simply the advancing volume divided by the advancing volume plus declining volume. You should keep this on a daily basis with either a four- or a five-day moving average to help keep you on the correct side of the market dynamics. It will help you determine the quality of the rallies or significance of declines. It's a handy tool and should be kept on a daily basis. The numbers are available in Investor's Business Daily every day. After you get used to recording it on a daily basis, your market feel for short-term market moves will improve, and so should your short-term trading. 

Nokia (NOK | Quote | Chart | News | PowerRating) gave you a good move out of a narrow-range pattern yesterday that had pulled back to the 20-day EMA and broke out to new highs after giving good trade-through entry. This change in direction by Nokia to new highs on increased volume can be called at least five different pattern names--and maybe one or two more, if I think about it! I will cover this in my next Advanced Trading Strategy, coming soon. The change in direction, and being able to recognize the indications that precede it are the key, not the name.

Pattern Setups 

We don't know whether it will gap down, at what point you will have trapdoors--if they gap them up, you'll be able to fade some of those and also be able to buy some of the pullback rallies. Stocks that setup: Cisco (CSCO | Quote | Chart | News | PowerRating), Intel (INTC | Quote | Chart | News | PowerRating), Harmonic (HLIT | Quote | Chart | News | PowerRating), Verticalnet (VERT | Quote | Chart | News | PowerRating), Vignette (VIGN | Quote | Chart | News | PowerRating), Motorola (MOT | Quote | Chart | News | PowerRating), and Biogen (BGEN | Quote | Chart | News | PowerRating).

Have a good trading day. Be ready to react--don't chase any gap openings.