Timing is Everything
It’s December 1,
the first day of the final month for the Generals to get the S&P
500 up 20% on the year. Airport Freddy showed up Tuesday, with the momentum stocks falling
because the players had no fools left to sell them to, and some real sellers
showed up. And that’s when the markup ends. But only just temporarily. Sooner or
later, price will be taken down to a level where the game can resume. Refer to
your reference points from prior days’ commentary.Â
An example of Freddy’s work for the last
two days includes air pockets from high to low for the following stocks: CMGI
[CMGI>CMGI] -15.4%; Amazon [AMZN>AMZN] -13.5%, Nokia [NOK>NOK] -10%,
and AOL [AOL>AOL] -17% in three days. There are also many other techs which
are off from 8% to 20% in the same timeframe. AOL is an example of when the bad
guys are selling to the dumb guys — the “us” in the world, you and I. AOL ran
from 10 in October 1998 to 87 3/4 in April 1999, an all-time high. That
bolstered many large mutual funds’ performance for the first quarter of 1999. The stock
then corrected geometrically by 62% to a low of 38 1/2 in August 1999. It then
made a W-bottom, broke above both its 50- and 200-day exponential moving
averages (EMAs), and also broke above its 6-month downtrend line. This started
the momentum phase, along with the other institutional Internets, as I have
mentioned in previous commentary.
“Sooner or
later, price will be taken down to a level where the game can
resume.”
Tuesday, I had mentioned Gap Stores
[GPS>GPS] GPS, which had the same geometric retracement as AOL to the 30-33
level, where good position trades could have been entered. GPS has rallied to 42
1/4 since, and above its 50- and 200-day exponential moving averages, so you’re
now looking for a pullback for entry and hope it has entered a momentum phase
and not just a blip. AOL, on the other hand, has rallied from its
retracement low of 38 1/2 to 85 3/4, which is just 2 points below its all-time
high of 87 3/4 and Tuesday announced they’re coming to market with over $1.25
billion in zero-coupon convertible notes. You get the picture: Timing is
everything.Â
The market tried to rally early Tuesday,
as bonds moved to the upside. The Dow was up by almost 100 points by 10:45 a.m.
ET, but the techs wouldn’t let the S&P 500 cash come up for air as it could
only manage a plus 1 or 2. The Nasdaq 100 was negative all day due to the techs.
Even with bonds up 22 ticks around 2:00 p.m. ET, the S&P cash was minus 3
and the Dow had dropped down to +68, with the NDX off 30. For those of you
keeping your market dynamics table shown in my five-day trading course, you
already know this. But for you others, you are missing opportunity. Market
dynamics and stock trade entry go hand in hand Â
The S&P 500 must have been
discounting Airport Freddy’s late-afternoon appearance because the S&P got
blown away from -3 at 2:00 p.m. ET to finish -19 on the day. And the Dow didn’t
escape, either, finishing -70 for a cute 170-point negative turnaround. They say
the late-afternoon trend is the true one for the day. And it certainly showed
that Tuesday. Also, Tuesday, you got excellent entries and multipoint profits in
the OEXs, QQQs, and Spiders off of Tuesday’s reference points. Don’t be afraid
to take the obvious when it’s given to you on a platter. Simple is best.
Program
Trading NumbersBuySellFair
Value5.102.903.90
Pattern Setups
On the long side, I consider the
patterns to be weak. On the short side, continuation entry on the QQQ’s if
you get it, and also on pullbacks to Monday’s low of 152 5/8 and Tuesday’s high
of 153 3/8. Look for patterns on your 5-minute charts if you get pullbacks. The
stock market dynamics must confirm your potential entry. Long side patterns:
Fannie Mae [FNM>FNM], only if it crosses its 50- and 200-day EMA; American
Express [AXP>AXP], above Monday’s high; Lehman Brothers [LEH>LEH] or
Morgan Stanley [MWD>MWD] (that’s the first entry — whichever one you get,
but not both); Intel [INTC>INTC], if it crosses above its 50-day EMA of 77.09
(use a tight stop); and Tandy [TAN>TAN], if it trades above Monday’s high.
These are weaker patterns than usual and if they take them down early Wednesday,
you’re going to see trap doors and opening reversals if they decide to run that
counter rally in the morning. Â
Have a good trading
day.