Mr. Softee Provides Viagra to the Markets

July 11, 2001
Carolyn Lueck

As I write
this commentary, we find S&P futures up 14.5 points and Nasdaq futures
up 70 points. It’s one of those situations where if you didn’t
find yourself long at the close, it will be a very difficult day to
trade tomorrow.

As you probably know by now, Microsoft
(
MSFT |
Quote |
Chart |
News |
PowerRating) confirmed the upper end
of its previous revenue guidance after the close of trading
today. This news sent stock futures into a tizzy and after-hours
trading finds many technology stocks up nearly 10%. Microsoft,
last I checked, had tacked on an additional 4 points to its 2 points
during regular trading hours. Without question, such large gaps up
almost always provide excellent selling opportunities for institutions
to sell to frenzied market-on-open retail buyers on the heels of
perceived good news. Obviously it is not easy to sit back and watch a
market “run-away” from you without participating. It
is, however, much more difficult to watch the stock you just bought up
10% from the prior day’s close come in hard after the initial
emotional gap up.

Therefore, in situations like these,
always err on the side of caution. Let the dust settle after the first
30 to 60 minutes of trading, so you can accurately assess how much of
the morning gap has held and how much has been sold into.
Experienced traders may choose to try to catch some shorts on any fade
of the open, but I personally will be standing aside during the first
hour of trading.

With roughly 30 minutes left in the trading day today, we were
scanning our sector lists but found it difficult to identify any
meaningful long-oriented setups that would warrant an overnight
hold. As the S&P cash found support in an area that Goran
Yordanoff pointed out in his commentary yesterday, we were inclined to
entertain long-biased trades as the session progressed. The Nasdaq
Composite was also sitting at a level of support from the April 10
gap (see chart below). As stated above, unless you jumped on
some plays immediately upon the release of the Microsoft news after
hours, we will have no way of knowing how trade will play out during
tomorrow’s trading.

It will be interesting to see how many days of positive trading the
bulls can put together after the pummeling the markets have taken over
the past few weeks. I’ve identified some levels of resistance that
bulls face in the coming sessions. Don’t forget, Microsoft
represents over 10% of the NDX, so the gap up tomorrow will be a doozy.