Which Train Should We Be On?

  • July 24, 2000
  • Kevin Haggerty

With
option expiration out of the way and
a follow-up-and-out by Greenspan today, we can then see which way the Generals
decide to take them and which train we should be on, i.e., techs, drugs or
whatever else the Flavor of the Week is. The Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) closed down
2.2% on Friday at 3909, which puts it off only 4.4% from its high and the .618
retracement zone at 4089. It is still also above both its rising 50- and
200-EMAs. This follows a 41% advance from the May 24 low of 2897 to the July 17
high of 4089. 


The SOX led the techs
down on Friday, -5.6% on the day, as the Generals continued to take some money
off the table in this extended sector. The SOX had advanced 56% in just four
weeks from its May 24 low, to its high of 1281 on June 22. The index then sold
down to 1065 before running up to 1270 on July 17, which was a 95% retracement
to 1281, and a lower top, and has
now sold off four straight days to 1082 and has also closed below its 50-day
EMA. 


This sector can easily
work lower to shed the excess, with intermittent sharp daily rallies, but the
index easily projects down to the 1050-997 level, short term, in the absence of
some positive news, before you get a decent rally. The .786 level would be down
in the 920 zone and  below the 200-day EMA.


So far, two of the four
stocks I mentioned in my Friday
July 14 commentary have taken out the 100 level. Network Appliance
(
NTAP |
Quote |
Chart |
News |
PowerRating) did it on Monday July 17 and Sun Micro
(
SUNW |
Quote |
Chart |
News |
PowerRating) on July 20.
Morgan Stanley
(
MWD |
Quote |
Chart |
News |
PowerRating), which closed Friday in the top of its range on a
wide-range bar at 94 11/16, is the next candidate. Xilinx
(
XLNX |
Quote |
Chart |
News |
PowerRating), which was
the fourth stock mentioned, crashed and burned on Friday, and gapped down on
some narrowing-margin news. 


No entry, no pain.


Due to the expiration on
Friday, any action today is keyed off continuation entries from the daily chart
and today’s intraday action. Friday’s market action doesn’t tell you much on the
expiration day because there are many different agendas.  

(September Futures)

Fair
Value

Buy

Sell

13.80

15.00

12.65

Pattern Setups

Friday was not a good setup day, so
you should look to the Friday leaders that closed in the upper part of their
range, just as some of the brokers did and also the financials which have
provided you some excellent trades over the past few days.

In the brokers — and I look at this
as all one trade, whichever one you get entry in, or more than one – 
Morgan Stanley
(
MWD |
Quote |
Chart |
News |
PowerRating), Lehman
(
LEH |
Quote |
Chart |
News |
PowerRating), Merrill Lynch
(
MER |
Quote |
Chart |
News |
PowerRating) and Bear
Stearns
(
BSC |
Quote |
Chart |
News |
PowerRating). All had similar patterns, just take the one that you get a
trade-through entry on. 

Also,  American Express
(
AXP |
Quote |
Chart |
News |
PowerRating)
on any pullback to its breakout level. You might take a continuation level, but
it will probably pull back some.

Also Network Appliance
(
NTAP |
Quote |
Chart |
News |
PowerRating),
Brocade
(
BRCD |
Quote |
Chart |
News |
PowerRating), Sepracor
(
SEPR |
Quote |
Chart |
News |
PowerRating), PMC Sierra
(
PMCS |
Quote |
Chart |
News |
PowerRating), Sapient
(
SAPE |
Quote |
Chart |
News |
PowerRating),
Echostar Communications
(
DISH |
Quote |
Chart |
News |
PowerRating), Alza
(
AZA |
Quote |
Chart |
News |
PowerRating), Johnson & Johnson
(
JNJ |
Quote |
Chart |
News |
PowerRating)
and Pfizer
(
PFE |
Quote |
Chart |
News |
PowerRating). 

On the short side, look to the QQQs
and SPYs on any continuation entries below Friday’s low and also Oracle
(
ORCL |
Quote |
Chart |
News |
PowerRating)
and Advanced Micro Devices
(
AMD |
Quote |
Chart |
News |
PowerRating) if they decide to take them south on any
continuation entries below Friday’s low.

Have a good trading day.