An Odd Situation

• October 9, 2001
• Dave Floyd

It appears as
though the Columbus Day holiday was enough of a deterrent for people
to trade, despite developments in Afghanistan. The trading yesterday, if one can
call it that, was basically non-existent from a "scalper’s"
perspective.  As I frequently mention in my columns, the S&P’s need
intraday moves of 3-5 points in order to establish and exit positions
effectively. Yesterday, there were very few moves of greater than 2-3 points in
magnitude. Nothing to be alarmed about, simply a sign to not trade. In fact, my
traders and I were done in the first hour and hardly made trades the remainder
of the day.

The one thing that most of us found
odd yesterday, although the holiday may explain part of it, was the fact that
the market did not rally on the heels of the bombing campaign. My suspicion
would have been that the bombing would have lifted some of the uncertainty
surrounding the market, based on yesterday’s session it did not. Normally I base
my market opinions on technicals and fundamentals, this situation strikes me as
odd and leads me to believe that lower levels may not be far off.

Given that there was not much to talk
about from a daytrader’s perspective, I want to shift the focus to some stocks
with intermediate term potential, as they appear to be topping out at some key
resistance levels. Combined with some negative fundamentals, these stocks may
offer some entry or re-entry points to the short side.

Lowe’s
(
LOW |
Quote |
Chart |
News |
PowerRating), the
Do-It-Yourself competitor of Home Depot, is not only rich by virtue of its P/E,
but also looks vulnerable from a technical standpoint. It closed yesterday below
its 20- and 200-day moving average, and is also now trading below the 50%
retracement from where it broke down from back in September.

Home Depot
(
HD |
Quote |
Chart |
News |
PowerRating), the leader
in home improvement, is demonstrating the same chart pattern as well as sporting
a rich P/E. My suspicion all along has been that these stocks were
vulnerable, due to the contraction of consumer spending as well as shrinking
profit margins. 

Going forward, the price of these
stocks will be quite sensitive to Friday’s September retail sales report. 
As always, place a protective stop in the event that report shows signs of a
strong consumer.

Today, I would suspect will bring back
more volatility as the bond market re-opens and more traders return from the
3-day weekend.  Currently the futures are basically unchanged.  The
Dow, while somewhat less of an intraday indicator is topping out around 9110,
and should be pivotal if the market begins to trade back up there.

Key
Technical Numbers:

Following up on last weekend’s TM2001,
I wanted to thank everyone at TradingMarkets who not only put on a great event,
but assisted me in putting together my presentation and alleviating the
pre-speech jitters.

As always, feel free to send me your
comments and questions.

Dave