One Question Interview with Dave Landry

August 2nd, 2006

Another One Question Interview, this time from Dave Landry. Dave is a well known swing trader and author who posts weekly webcasts on swing trading and trading in general. I did a full interview with Dave several weeks back.

Here’s the question for the first round of One Question Interviews:

What trading lesson(s) have you learned from the downtrend that started in May?

Dave:As a trend follower, my goal is to identify and trade trends. I’m usually wrong when the market turns. However, in May 2006, I was actually bracing for a potential market top.

Why? In spite of the S&P breaking out to new highs, there were quite a few signs that had me suspicious. The S&P did not follow through from its breakout. The Nasdaq and most of the tech it represents was lagging. Areas such as broker/dealer that often lead the market were topping. Further, the uptrend in the S&P seemed to be sustained mostly by commodity related stocks—not what a bull market is made of.

Instead of me telling you in perfect hindsight all of these things, I think it would be more beneficial to watch the webcasts that were recorded around the time the market topped. In them, I discussed in detail the aforementioned signs. They can be found at my webcast archive (watch the 05/03/06 and 05/10/06). Email me and I’ll also send you archives of my column and trading service for that period.

If I had to say one lesson learned is to do your homework. Just because and index like the S&P is making new highs, it doesn’t give you the “all clear” to buy stocks. Dig a little deeper: See what stocks are driving the index and make sure that sectors which tend to lead the market are confirming.

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