The Market is Talking
Each evening we focus on the most interesting aspects of the upcoming trading day. These comments are based on observations of the nightly updates of the Stocks/Sectors and Market Bias pages. They are provided for educational purposes only and are not intended to be direct trading advice. Also, keep in mind that these remarks are made up to 12 hours before the markets open. Therefore, overnight events may alter the outcome of these observations.
At the time this is being published (Thursday night), the S&P Globex futures are 1.30 points higher and the T-bond futures are up one tick.
Today’s market action was very interesting to me. Wednesday’s sell-off, combined with a number of Market Bias Indicators pointing lower and the situation in Yugoslavia (which seemed to worsen by the hour) had virtually no effect on things. In fact, you would have to assume that many traders and money managers would not want to own stock over the long weekend, especially as world events take front stage. The market though, ignored all this, absorbed the selling and moved higher. It was basically saying it did not care about Wednesday’s sell-off or Yugoslavia. If the weekend does not bring any bad news the market has the potential to explode to the upside early next week.
Tonight we have three Market Bias signals pointing lower. Two of them are more than one day old and in light of today’s positive price action I personally do not put a great deal of emphasis on them for Monday. The Globex futures on Sunday night will basically tip their hand as to how things will play out on Monday morning.
As you know, the Trading Where the Action Is (TWTA) list contains the most volatile stocks and is only for aggressive traders who are willing to assume a high degree of risk in order to capture larger gains. With that said Ameritrade [AMTD>AMTD] is a cup-and-handle pattern. This, combined with the fact that it is in the strong Broker/Dealer Sector [$XBD.X>$XBD.X] (see our Strongest Sectors List), suggests that the next move could be higher.
I have found if you can combine pattern with high- volatility stocks (those on the Trading Where the Action Is List) it often leads to extraordinary gains. Below is a chart of InterVU [ITVU>ITVU], a stock I mentioned last night as a high-level pennant (see archive for 3/31/99). Notice the large gain (over 15 points) it made today on a breakout of the pennant. Although trading these volatile stocks is not without risk, the chart exemplifies the types of moves that are possible.
ITVU.
Combining patterns such as pennants with highly volatile stocks (like those on our Trading Where The Action Is) can often lead to large gains.
Source: Omega Research.
On the Pullback List, many of the recently strong oil service [$OSX.X>$OSX.X] stocks have pulled back. Look for buying opportunities over the next few trading days in stocks like Weatherford International [WFT>WFT], Anadarko [APC>APC], Apache [APA>APA], Diamond Offshore [DIA>DIA] and other OSX related stocks on the list. Other stocks on the Pullback List that look interesting to me are Alltel [AT>AT] and Temple Inland [TIN>TIN], both of which are cup-and-handle patterns.
For you breakout players, Security First [SONE>SONE], on the Internet Fab 5 List, broke out decisively out of a cup formation today. Network Appliance [NTAP>NTAP], on the New 60-Day Highs on Double Volume list, closed near the highs and at a new closing high. This, combined with the fact that it is breaking out of a loosely formed cup-and-handle pattern, suggests it has additional upside potential.
Enjoy your holiday and best of luck with your trading on Monday!
Dave Landry
Director of Research
TradingMarkets.com