Yesterday, the futures turned down right before the opening and the tech
stocks went south. Interest rates perked up, the long bond lost almost a point, and the Utility
Index (UTY) closed below its 200-day moving average for the fifth straight day.
But we did see
some money go into the cyclicals–chemicals, forest products, and aluminums.
There is no question the basics have been under-weighted by the institutions. It appears “team
deflation” is in hibernation, or on the same road trip as the tech analysts with their $210-225
price targets for some of the major tech stocks. (At $185, a stock has a price target of $223,
but at $170, the analyst is on vacation and has no comment.)
Expect some downside follow-through by tech issues early today. More would be better
than less, and would set up some excellent rebound trades in the big five–Dell [DELL>DELL],
Microsoft [MSFT>MSFT], Intel [INTC>INTC] Cisco [CSCO>CSCO], and EMC [EMC>EMC].
An early down move also would set up a good long trade in the spiders [SPY>SPY] this
afternoon, because the Mysterious Futures Buyer will probably show up again and keep the market
from looking as ugly as it really is.
Target Stocks Of The DayÂ Â Some of the drugs acted well yesterday, including
Bristol Meyers [BMY>BMY], which ran to 133 13/16 before fading to 130 1/2; look for entry today
if it starts to move.
Several cyclical look good, including Rohm & Haas [ROH>ROH] and Union Carbide [UK>UK], which
had wide-range outside days on increased volume and closed at the top of their ranges. Reynolds
Metals [RLM>RLM] is lagging Alcoa [AA>AA], as it always does, but if the cyclical
noise keeps up, it could run. I would play these as position trades with tight money stops.
Fingerhut [FHT>FHT] trading above 20 5/8 could challenge old highs, and look for buy patterns
in Best Buy
[BBY>BBY] as well. Overall, the best play today will be to buy the spiders out of a pattern
for the inevitable end-of-the-week mark-up.