Schaeffer's Trading Floor Blog

Lunch Time Lull

by 2/17/2005 12:36 PM
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The broad market indices have bounced off their lows but are still showing losses on the day. There are a couple of points in the graph below, however that just caught my eye...

The first is that housing stocks are gaining traction. Yesterday I mentioned Toll Brothers (TOL) and I still think it is an interesting (albeit risky) situation.

The other point that stands out is the loss in networking. This spurred me to check out Cisco and I saw that it is once again testing support near 17.50. I discussed this situation a couple of times last week and this link sums up those discussions. I would continue to keep a wary eye on this stock as a break here would not be "constructive"....


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Continuing from below...

The other aspect is that it can give you a chance to watch patterns develop. For example...This morning I watched a pickup truck come barreling up an open stretch in the slow speed lane. I didn't know the driver and I didn't recognize the truck, but experience has taught me that I could likely expect that what was going to happen next would not be pretty. I couldn't predict exact what the driver would do, but I had reason to expect that the "risk" level was about to rise so I made sure I knew what cars where around me and began to ease off the gas....

The driver stayed in that lane until the last possible moment and then cut-off the driver in the middle lane. A short-time later the truck then darted into the high-speed lane (cutting-off another car) and sprinted away. In the end, nothing bad happened, but I think it is safe to say the potential for problems was greatly increased.

I see this happen often, and most times it ends that same way. However, there will be a time when this triggers a set of terrible events so I want to make sure I prepared to handle it the best I can. In other words, I think it important to be cognizant of/prepared for the "unlikely" event because that is the one that carries the gravest consequences.

The key to identifying the behavior had nothing to do with the driver or the vehicle type - it was relative action. This vehicle was acting different from the rest of the vehicles around it and exhibiting different behavior from what you would expect to see in that lane. I have seen this type of behavior before and therefore had an idea of what to expect...

To be continued...


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Continuing from below...

I know the miles from my house to the office. I know there are various parts along my route that are bottlenecks and back up at certain times. I also know that certain "events" happen at various times - such as the school bus that passes my street at the same time in the morning and will slow me down if I get stuck behind it.

As such I can take these "constants" and get a sense for how long my drive will be "on average". However, each commute is different because I can never predict what individual drivers will do. A careless moment or a piece of debris that falls from a truck can cause a ripple effect that can severely alter any particular day's situation.

To be continued...

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A couple of weeks ago, I warned that trading can permeate how you view your everyday life and today I have another example...

My drive into work gives me some time to think about the market. It also gives me a chance to explore human nature by keeping an eye on the cars around me. Today it struck me that there are some similarities to the two.

One of the most difficult aspects of trading...okay, who am I kidding, I think it is all difficult - so maybe I am a bit slow - but I still think this is an important topic...is that events in the market can play out in an almost infinite numbers of ways. This applies not only to outcomes but to the action that leads there. For an example of what I mean, consider traffic flows....

To be continued...

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Yesterday I noted some intermediate-term levels on the SPX. Here is what I am watching on the SPY...


Created with SuperCharts by Omega Research

In past posts, I noted the support zone near 119. On a shorter-term basis, the SPY is on the verge of breaking below support near 120.5...

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