Ice, Ice, Baby

Tryin’ to get away, before we get jacked (robbed)

With the “avenue packed”
with bulls reveling in their own glory and good fortune, I witnessed what I like
to call “capitulation buying” late this morning. Like frustrated longs
throwing in the towel at lows often signifies a reversal up, so does the
capitulation of shorts and panic buying at highs often signify a reversal down.

Having started to scale into short
positions earlier this week, it was important not to let your emotions overwhelm
your rational thought and decision making. The second that happens, you are
finished at this game. You must have ice running through your veins.

Being armed with some key resistance
levels in the 2876-2900 area as well as some very useful fibonacci price cluster
resistance levels (as detailed in Carolyn Boroden’s piece
yesterday), I was armed to build full short positions on some of the
“chosen ones” that were bid excessively over the past 10-11 sessions.

With the market in full “feel
good” mode, it would only require an ounce of uncertainty to scare the Wall
Street fast money out of the Nasdaq on the first sign of failure to follow
through. After all, we were all “guaranteed” 3000 as a target for this
move up from our smiling friends on television, right?

The 3000 level was not to be, as the
Nasdaq futures could not overcome their 2780-2806 resistance zone. Once this
level was offered into excessively and the futures sold off, there was a rush
for the exits as the “fast money” tipped their collective hats at the
retail sector that fueled a multi-week rally that saw the Nasdaq Composite gain
nearly 29% since its January 3 lows.

After the bell, the picture for
tomorrow’s trade grew a little dimmer as
(
SDLI |
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(
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(
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(
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and
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PowerRating) all traded down significantly from their closing levels.

The CEO of GLW stated that the fiber
and photonics order rate may be lower in Q1 while the SNDK (flash memory
producer) CEO said “the results for the upcoming year could suffer
materially if the slowdown continues into the second half of the year or if the
global economy goes into recession.” Not the kinds of things you want to
hear from the Cinderella sectors that are priced for perfection. At present,
SDLI is trading off nearly 15 pts from its close, NEWP down almost 15, GLW down
6, AMGN down 3, and SNDK shedding over 10 points. This certainly doesn’t bode
well for the technology sector looking into tomorrow’s session.

With the Fed’s Jan 30-31 FOMC meeting
looming next week, all eyes will be on Fed Chairman Greenspan’s testimony
tomorrow before the Senate Budget Committee. With the equities markets (the bond
markets are a bit uncertain) certainly pricing in a 50-basis-point rate cut,
traders will be looking for Greenspan to confirm this assumption. The slightest
hint that a 50-basis-point cut is not a sure thing this month and we will
probably see significant profit-taking ensue.

The Nasdaq 60-minute volatility
triangle is still here (as we milk this puppy to death):

As seen above, we have not broken out
of the clutches of this triangle. Could all the celebrations of a “new bull
market” be a bit premature?

Long Watch: Drugs may have a good day
tomorrow, as tech looks lower here.

Short Watch: Look for short entries in
technology, biotech and fiber optic names that have had excessive up moves.

Have a good night.

Goran