Hat Trick
The S&P 500 had the hat trick yesterday, first breaking below Friday’s low, then taking out both its five-day low and 50-day exponential moving average (EMA), which triggered increased institutional selling and sell programs. By noon it had taken out the April 30 reaction low of 1314.55. The best may to play these moves is from the short side with the SPDRS. The S&P continued down to hit a low of 1303.45 in the last half hour of trading and finished near the low of its range.
During the day an analyst from Credit Suisse First Boston put the sell whammy on Chase Manhattan Bank (CMB), Citigroup (C), JP Morgan (JPM) and Bank One (ONE) because of purported Y2K problems and possible shrinking of capital markets profits. He told us it’s okay to leave our money there, just don’t own them. Bet he’s some dinner partner!
There was obviously significant institutional selling yesterday as down volume/up volume was -3.75 to 1, and that volume accelerated as the S&P broke through its successive support levels. Total volume was moderate and breadth was very negative with advancers minus decliners at -1161.
The major drug and brokerage stocks are now leading the market down as they trade below their 200-day EMAs; the financials and some of the retailers, like Wal-Mart (WMT) and Home Depot (HD), are close behind. Some of the major techs, like Dell (DELL), Microsoft (MSFT) and EMC (EMC), hit their highs in March; they’re correcting, but are still holding above their 200-day EMAs. I’m not mentioning the Internet names because only so many of them are institutional stocks (Lycos joins the NASDAQ 100 on Friday).
The S&P 500 is off 5% from its all-time high, and after yesterday, 1280 can arrive in a blink. Continue to manage your risk on an intra-day basis; if some of the institutional stocks begin to set up at their 200-day EMAs, you can expect some good position possibilities. If we get the expected downside move early, you can expect some good “trap door” and “opening reversal” opportunities.
Target Stocks Of The Day Some of these stocks can go either way–position trades or intra-day: Union Pacific [UNP>UNP], Owens-Illinois [OI>OI], American Stores [ASC>ASC], CVS [CVS>CVS], Temple-Inland [TIN>TIN], Quaker Oats [OAT>OAT], FMC Corp. [FMC>FMC], and Legato Systems [LGTO>LGTO].
Program trading numbers Buy: 5.50. Sell: 1.80. The brokerage houses don’t do a lot of program trading, but when they do, they kick in at smaller levels than we quote here because they don’t have to pay commissions. So if you see some program action at different levels, that’s what’s happening.
Editor’s note: If you want to learn more about Kevin Haggerty’s trading strategies, click on the link below to go to his new series of tutorial articles.