Two for the watchlist

With the market still being at extreme overbought levels, I have been making doing a lot more day trading than I would normally like and avoiding new swing positions. So, here are two candidates that I will be keeping an eye on for some quick trading opportunities tomorrow. In case you missed it, here is a post on my underlining my complete strategy for trading in overbought markets.

Take care and good luck!

Restaurants on the go

Many of the restaurant stocks had a good day on Friday and even more are setting up nicely, making it the sector to watch out for this week in my opinion. Following are the setups I like with the important levels marked on the charts itself.

Take care and good luck!

Way overbought

According to the good ol' trusty McClellan Oscillator, the market is at its most overbought since last July. Following are the charts for the NASDAQ and NYSE McClellan Oscillators with the overbought levels marked on them.

 

 

Its obvious that the odds greatly favor a pullback here.

How to trade these markets?

(1) Don't go chasing momentum stocks now. Chances are you will be left holding the bag.

(2) Take partial profits from longs and let the rest run. 

(3) Don't wait to sell at the top. Calling the top is a fool's game.

(4) If you want to go short, start with a small position. This way you can give it room to run instead of being forced to call the exact top. If the market indeed reverses, you will get plenty of chances to add to your positions later.

(5) Most importantly, keep your stops on all short positions no matter how confident you are of a pullback here. Remember, the markets can stay irrational a lot longer than you can stay solvent. The above assumes that you are rational in the first place :).