Oh, Cisco! The Places You’ll Go!

May 9, 2001
Carolyn Lueck

You’ll be on your way up

You’ll be seeing great
sights!

You’ll join the high
fliers.

Who soar to high heights.

You won’t lag behind,
because you’ll have the speed.

You’ll pass the whole
gang and you’ll soon take the lead.

Wherever you fly, you’ll
be best of the best.

Where you go, you will
top all the rest.

Except when you don’t.

Because, sometimes, you won’t.

I’m sorry to say so

but, sadly,

It’s true

that Bang-ups

and Hang-ups can
happen to you.

You can get all hung up

in a prickle-ly perch.

And your gang will fly
on.

You’ll be left in a
Lurch.

You’ll come down from the
Lurch

with an unpleasant bump.

And the chances are, then,

that you’ll be in a slump.

And when you’re in a
Slump,

you’re not in for much
fun.

Un-slumping yourself

is not easily done.

Taken from Oh, the Places You’ll Go! by Dr. Seuss

Before I get to this ingenious passage from
Dr. Seuss, I’d like to say how happy I am to be joining the
TradingMarkets team. I had the pleasure of meeting many of the TM
commentators, staff and members at the Haggerty seminar last year in New
York and the Saliba seminar this past month. I’m fortunate to say that
many have even become personal friends in addition to trading colleagues…I
can’t wait for TradingMarkets 2001 to meet the rest of you. I also must
say that if you haven’t read Jeff Cooper’s column yet today, get right
to it! Jeff’s piece really presents a rational and objective
take on current action in the face of a very emotional and
frustrating market.

Now, back to my quotation. A friend gave us
this book this past weekend, and I find it just amazing. The above
passage, in my opinion, applies not only to Cisco, but to the stock
market as a whole – Cisco is just the most appropriate choice for today.
It’s amazing how incredibly focused the whole trading universe seemed to
be on the Cisco earnings and conference call last night. If you sat
through the conference call, though, you probably felt completely
unsatisfied. Enough has been written and said about the content (or
lack there-of) of the call, so I won’t give you more of what you already
know. It seemed to me during the past few days that most traders were
waiting, with baited breath, for signs that Cisco would provide an
improved outlook. Volume in the stock market has been decreasing rather
dramatically during the past few sessions with each day giving traders
more reasons to perhaps sit on the sidelines to see what the next “big
event” will bring. Tuesday, we had Cisco deliver a virtual non-event;
traders will now turn toward the second half of this trading week, which
on Thursday gives us initial jobless claims for the week ending
April 28, and PPI, retail sales and Michigan consumer sentiment index on
Friday. As we have all been made to believe, the consumer is supposed to
save the economy from recession so, these numbers will be key to –
that’s right, the mother of all “events” – the upcoming FOMC
meeting.

Given that opening gaps in the indices seem
to be an everyday event now shaped by aftermarket/premarket news events
and economic numbers, it’s rather hard to know what side of the market
you want to be on at the close of trading each day. Looking at the chart
of the Nasdaq 100 Index below, the index has essentially traded in a
choppy sideways range for the past 16 trading sessions. We can clearly
identify three candlestick topping formations that have formed from late April.
Looking further, you’ll see we’ve had 13 gap openings in those past 16
sessions. Given this volatility, it’s essential to have support and
resistance levels figured out ahead of time if you are choosing to go
home overnight with positions.

Wednesday’s gap-down open did not provide
a graceful entry for the short side unless you were positioned from
yesterday’s close. As the above chart displays, the NDX has defined
resistance in the 1940-1960 range. Although a late-session rally
ensued near the close of trading Tuesday, the overall daily
candlestick resulted in a “hanging man” formation, which
followed the prior day’s bearish candlestick. Usually, it isn’t
warranted taking a swing trade position based on the implications of one
single candlestick formation, but when these bearish formations begin to
present themselves after prior bearish candles or formations, the
overall signal begins to get stronger. As such, initiating short
positions with a stop over Monday’s high of 1948 seems to offer an
acceptable risk/reward scenario. As such, many in the Nasdaq
glamour-patch reflect a similar chart pattern, as many of those issues
trade in lock- step with the index. So, therefore, I use this chart for
trading ideas at the end of this article.

If you didn’t come in short Wednesday
morning, it was
prudent to step aside and let a pattern develop. The markets chopped
sideways for nearly an hour-and-a-half before making a break to the
upside. During the sideways movement, we saw virtually no negative TICK
reading and a rather low TRIN reading for a gap-down of this size.
When a sizable TICK reading finally did come, it was markedly to the
upside. Support for the Nasdaq futures came in almost to the tick, with
levels Carolyn Boroden’s service provided. While in her chat room this
morning, she reminded all of us to “forget our fear” and focus
on the numbers. Staying calm and focused during this morning’s trade was
key to catching the ride to the upside.

The proclamation made by General Electric
(
GE |
Quote |
Chart |
News |
PowerRating))
mid-morning that they expected their EPS for the year to be
“solidly above $1.45” certainly was delivered in a triumphant
fashion, but a closer examination of the facts revealed that the
previous range of their expected EPS was between $1.40 and $1.50 anyway!
The market heralded this statement as a newsworthy event that would
necessitate buying stocks. However, the rally quickly fizzled as trading
volume dried up; the market found itself at some key resistance levels,
and halted its advance. As we approached the area of Tuesday’s close,
we started seeing tick readings come down off high levels and, in fact,
begin to go negative. The signals were there for long players to get out
of plays and/or tighten stops. We broke decisively to the downside from
that point on.

Wednesday’s close gives us bearish implications
for tomorrow’s trading. We have a fairly important number coming out
pre-market that could change this, but for now I would focus on the
short side of the market. Many have suggested that the market will not
move in any decisive manner prior to the FOMC meeting but when has the
market ever followed a script?

For now, the risk/reward appears to favor
short sales in technology names.

Long Recommendations: The Pharmaceutical Index
($DRG) looks poised for a breakout

Have a good trading session,

Carolyn

Oh, Cisco! The Places You’ll Go!

BUY THE FEAR, SELL THE GREED

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