At The Venetian II
At TradingMarkets2000 last weekend, I was asked by a
number of people if it was time to buy in the wake of Friday’s impressive romp.
This surprised me, since Friday a.m.
was the absolute low for the six-week drop of 28%.
Which means that buying Friday
amounted to attempting to catch a falling knife.
Even if you bought an individual stock
that broke out to a fresh high on Friday, you are faced with an anemic Naz.
And for many, the biggest lesson of
2000 has been that buying breakouts doesn’t work when the general market is
limp.
Now it’s one thing to make a
"test buy" or two when the market is showing some decent price/volume
in the Nasdaq, such as we saw a couple of times during the summer.
During these episodes, the index had a
number of accumulation days behind it.
With tight stops and a limited portion
of your account, there is no problem with making a test buy.
But it’s another thing entirely to buy
on the very day that the Comp prints a fresh low for the downdraft.
No matter how powerful that single day
is.
I told the people at The Venetian that one
day off the bottom doesn’t impress me.
You always want to see some
follow-through subsequent to a low in a big index — some sort of confirmation
that a bottom is in place.
And even when you see a good
confirmation day, say a week or so after an index makes a new low, you want to
see that backed up by some constructive action in the growth sector.
By "constructive action," I
refer to growth stocks breaking out of sound
bases on volume.
By "sound bases," I am not
referring to the three-week range that Juniper
(
JNPR |
Quote |
Chart |
News |
PowerRating) broke out of Monday
(see the Intermediate-Term
Trading Course that I wrote with Greg Kuhn on TradingMarkets.com for more
on this).
By "volume," I mean of the
convincing sort, the sort that tells you the institutions are putting their
money where their mouths are.
I have spoken often about the
importance of leadership when critiquing a market.
The relative importance of this name
or that name will change often.
For example, most recently, Juniper
has emerged near or at the top of my list of key glamours.
When I last spoke of Juniper, I had
mentioned that the stock was tracing an ominous pattern.
Specifically, what I didn’t like was
the fact that the stock churned on elevated trade Tuesday and Wednesday of last
week.
After Thursday’s session, the stock
appeared to be halfway through the right side of the right shoulder of a
head-and-shoulders.
This is what I had covertly referred
to in my Thursday
comment.
That other glamours, Verisign
(
VRSN |
Quote |
Chart |
News |
PowerRating)
and PMC
(
PMCS |
Quote |
Chart |
News |
PowerRating) are two, had completed h-and-s tops added to the ominousness.
No sooner had I said this than JNPR
blew away all Street estimates with its earnings report after Thursday’s close.
Then JNPR rose to the challenge Friday
by responding to the good news in a way that few stocks have over the past six
weeks.
This was a good sign for the growth
sector as a whole, but did not mean it was time to buy JNPR, since the
three-week range didn’t amount to a base.
Tuesday’s action in JNPR was clearly
disappointing since volume, though a bit less than Monday, shouldn’t have been
80% above usual on the first pullback day subsequent to breakout.
For sentiment purposes only, JNPR
remains a stock high on my radar screen.
Tuesday, EMC
(
EMC |
Quote |
Chart |
News |
PowerRating), that über
bell, was distributed, and looks ominous given the market backdrop.
More from The Venetian: Sunday’s
"Meeting Of The Minds" was a panel made up of people including
Haggerty, Cooper, Baker, Borsellino, Boucher, Landry, Crescenzi, Najarian, Sajan,
etc…the most talented panel I have ever had the privilege of being a part of.
Easily.
When you sit on panels as I have, and
experience fellow panel members attacking you for having a strategy that is
different from theirs, you appreciate the egoless group that comprised the
"Meeting Of The Minds."
Connors did a superb job of moderating
the panel’s discussion, adding value at every turn.
One popular topic of conversation @
The Venetian: Greg Kuhn.
Greg had three things that consumed
his life: his family, his fund, and TradingMarkets.
Two’s company, three’s a crowd. One
had to go, and it was TM.
One of the questions asked during the
Meeting Of The Minds was what book was the favorite of each panel member.
My response: "How To Make Money
In Stocks by Bill O’Neil has had the greatest impact on more of our era’s most
outstanding intermediate traders than any other."