What A Difference A Day Makes

Last night brought news of the
April book to bill ratio of .42 (for every $100 worth of products shipped, only
$42 in new orders materialized), which was the worst reading we’ve had in ten
years. The chips suffered and the Philly
Semiconductor Index ($SOX)
ended the session off 5 percent, with (ALTR),
(AMAT),
(AMCC),
(LRCX),
(NVLS),
(PMCS),
(RFMD),
(TER)
and (XLNX)
taking the worst of the hits. What
is most interesting about this news is the fact that, for the first time in
weeks, the market DID NOT shrug off bad news. No
"bad news is good news" rally ensued after our gap down open today.
This is a marked psychological change and may indicate that the torrid
advance from the March 22 Dow and the April 4^th NDX lows have drawn
to a short-term conclusion, and, just like that, the market finds itself in a
retracement mode. (Please, no hate mail for stating that the market may retrace
here!)  TriQuint Semiconductor (TQNT)
provided more negative news after the close, by warning for this quarter and
guiding analysts lower for the remaining three quarters of the fiscal year,
which should provide even more short term negative momentum for the SOX and the
tech-laden Nasdaq. 

As you can see, the SOX has
struggled at the 700 area. Support can be
seen between 600-625. Below that we could
test 525-550.

Looking to a daily chart of the
Nasdaq Composite shows that we surpassed a 50% retracement from the January
highs to the April lows earlier this week, but trading today has taken us back
below this level. Presently, an evening star formation with a very bearish
candlestick today (open at highs, close at lows) signals the potential for a
multi-day pullback to help alleviate the overbought condition. I have marked a
few areas on the chart that could provide potential support. The strength of the
Nasdaq has been incredibly impressive and the index should resume it’s rally
of the April 4^th lows sometime within the next few weeks.

The DOW has also begun a
much-needed breather after an explosive move up last week.
Traders should look for the important psychological 11,000 level to hold.
A close below this level would likely result in a test of the 10,750
area. The weekly chart helps show us
the area this move stalled at, by giving us a clearer "picture" of
where sellers have appeared in the past.

I’ve included a chart of the
Dow Utilities again to show the clear area of resistance on this index.
Again, the Utilities, while making a very impressive move, have not
confirmed the Dow’s move to a new high on the year.

For those who have been long
during this amazing rally, trailing stops would have allowed you to capture the
bulk of the move. Never forget how much
pain the average investor has experienced during
a nearly 70% Nasdaq stock market decline to the April lows. And, never
ever forget the way margin loans exasperated the situation.
Don’t let the fear of "under-performing" make you take risks
with your trading.      

Talk of "Don’t Fight the
Fed," second half recovery, visibility, etc., lead to this fear and to the
kind of "panic-buying" we have seen during the past week.
In my opinion, the most important concepts for survival as a trader are
trade management and disciplined trading. No
one can predict 100% where we’ll be from one day to the next in this trading
environment (heck, lately I’m having problems predicting where we’ll be from
one HOUR to the next). Come in each day ready to trade the market both ways and
always take profits over opinions.

Thursday brings jobless claims
and new home sales. As an added treat,
we’ve got Alan Greenspan talking tomorrow night in his twice-annual testimony
before Congress. Everyone will be looking
for hints on the Federal Reserve’s position on interest rates.
All this in front of a long holiday weekend means probable thin and
volatile trading Thursday and Friday. Speaking
of which, have a great Memorial Day!

Good trading

Carolyn