Wheels-A-Spinnin’

June 26, 2000
Greg Kuhn

Clear high! Clear
high?

“Spotter…you’re fired!”

Wait a minute. I was the spotter. Can
I fire myself?

The market’s downside pressure was
just too much for most stocks to handle. Too many failed breakouts Thursday
should have raised a red flag to the intermediate-term trader attempting to
catch an upside wave.

If you bought ’em and they didn’t
work, like Checkpoint Software
(
CHKP |
Quote |
Chart |
News |
PowerRating), you should have sold ’em —
immediately. In the market, there’s the quick, then there’s the dead. As painful
as it was to see Checkpoint Software, for instance, up 14 points on Thursday’s
breakout attempt only to give it up and then some, by the close, left only one
course of action — SELL!

Then there was M Systems Flash Pointer
(
FLSH |
Quote |
Chart |
News |
PowerRating) — broke out from a cup-with-handle base, then…plop!. No more
oomph left. It failed too. In fact, that was one of first recent breakout movers
to just drop like a rock Thursday morning.

If a recent breakout, like Triquint
Semiconductor
(
TQNT |
Quote |
Chart |
News |
PowerRating), pulled back below the lip of its handle, you shouldn’t
have bought it. Uh, uh. Sure, you could have caught it pulling back to a low.
But, then again, there’s the “getting cute,” and there’s the dead.
Maybe it works. However, if you’re right, you may have just reinforced a bad
habit — one that you’ll pay dearly for eventually. Pullbacks can be bought
following breakout moves — especially on light volume — but only if the pullback
holds above support, or above a recent breakout point.

All three of the above-mentioned names
carried O’Neil RS ranks of 98 or 99 on launch date. If they’re failing, then you
have to question the whole setup in the market at that point.

Remember what I wrote last
week. You
have to operate in the market with the attitude that things can change in an
instant. Try not to be either bull or bear, but an opportunist. That’s the calling
card of the intermediate-term trader.

Bottom line: Once you saw a number of
high RS stocks, in high RS groups, struggling to break out, while others
completely failed, it should have told you to hold your horses. Guard your capital like nobody’s business.

Let me put it this way; just as I was
getting comfortable with my positions, it was time to sell. I cut back
significantly on my long exposure Thursday and Friday. How’s that for switching
gears? If you’re not used to it, it can wreak havoc on your psyche. If you want
to play this game, get used to it fast if you’re not already.

And why did a number of stocks fail on
their breakouts?

Although Thursday’s down session in
the Nasdaq Composite only showed a scant amount of distribution — volume was 6%
higher than Wednesday’s upside-close volume to be exact — a lot more
distribution appeared in NYSE volume last week — three out of the past six
trading sessions showed distributive activity, to be exact. Not what you want to
see if the market was gearing up for a meaningful advance. So, perhaps, the
bottoming process continues in the Naz.

Just the overall weight of the market
kept even the best stocks from advancing.

Keithley Instruments
(
KEI |
Quote |
Chart |
News |
PowerRating) is
finally succumbing from the bleacher seats. Save a graph of this one. That big
‘ole reversal day on heavy volume June 14 was your signal that it was running
out of steam.

Pericom Semiconductor
(
PSEM |
Quote |
Chart |
News |
PowerRating) held
in well over last week’s late drubbing in the market, following its solid
breakout.

Then there’s Nokia
(
NOK |
Quote |
Chart |
News |
PowerRating). Another
leader that shouldn’t have been bought. Despite what appeared to be a fine,
double-bottom setup, it tried to emerge into new high ground from an upward
“wedging” handle. It soon failed. Giant failure!

Xilinx
(
XLNX |
Quote |
Chart |
News |
PowerRating)? Same thing here —
upward “wedging” handle. Not what you want.

Do you see how the majority of the
base can look great, but right at the key inflection point — the breakout
point — it speaks, “Don’t buy me, don’t buy me”?

Well, I guess it’s a moot point. Even
the better-looking setups failed. Even so, even if you bought the better setups
on their breakouts, reward yourself for sticking to your rules. And if you
honored your stops like you should have, sit up from your chair, smile,
walk away and wait for another day. You did your job. It pays off in the long
run. As far as the poor setups, such as Nokia and Xilinx, study what was wrong
with them. It’ll pay off in lessening your aggravation in the long run.

But not all is for naught.

It’s definitely tricky in here and
there’s obviously much trepidation in the market over the Fed’s meeting
this week. The market isn’t rewarding us as easily as it did coming off the
October ’98 bottom.

Then again, unlike now, the Fed was in
an aggressive easing mode then. As history has proven, the direction of interest
rates does matter in the long run.

As intermediate-term traders,
sometimes we’re in, sometimes we’re out, then sometimes we’re just spinning our
wheels. This is one of those times.

IMPORTANT NOTE: This column will not be published Thursday June 29. I will be away on a one-week vacation but will return with my
usual banter next Monday. Stay flexible and honor those stops!

Wheels-A-Spinnin’

BUY THE FEAR, SELL THE GREED

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