Cleansing Continues in Split Market
A quick
summary of yesterday’s activity shows us a total volume of almost 1.1
billion shares, advances leading decliners by 827 and an up/down volume ratio
that was positive at 663 million upvolume and 380 million down. Institutional
blocks of 10,000 shares or more increased to 22,817 and the Dow finished +131 or
up 1.2%. All of the Dow stocks that were up had an increase in volume above
their normal 50-day average. On top of that, bonds closed their session +23
ticks. It certainly sounds like a positive day to me. However, the famous side
of our new paradigm market, the Nasdaq laden with tech and Internets, went south
again to the tune of 3.9%. The NDX, which is the top 100 OTC stocks, is now down
13.1% from high to yesterday’s low.
| “When you look at a trade, ask yourself, ‘What can I lose?’ not ‘What can I make?’ “ |
Make sure you have read Mark Boucher’s
timing model which is on the site in the recent course by Boucher and Larry
Connors. It is a must-read for all investors, regardless of your timeframe. It
is obvious that tech weightings are being reduced, certainly by the portfolio
managers who took it on the chin during the 1995 tech debacle, i.e., a Micron
Technology (MU)
plunging from 95 to 16, to mention just one example. Tech stocks with puts is a
good combination. Tech stocks held naked is no different than buying orange
juice or coffee and getting caught in limit-down moves or else fortunate enough
to catch a parabolic move to the upside. Get the message. When you look at a
trade, ask yourself: “What can I lose?” not “What can I
make?” If you do that, your strategies will change and you will become much
more profitable and consistent if you are trading or investing.
You shouldn’t be surprised at this
mini meltdown in the momentum stocks. We certainly have discussed the air
pockets that develop after very strong mark-ups like you just experienced from
October to year-end. The Greater Fools disappeared, leaving only the retail that
are foolish enough to listen to the new game of analysts putting ridiculous
price targets on some of these high-flyers. If the analysts are so good, when
was the last time you heard one give you early warning of trouble like Computer
Sciences (CSC)
or now Lucent (LU)
last night? The net, net, net is that they follow them up after the fact, hype,
raising estimates and then they trail them down, reducing estimates and lower
price targets. You don’t need it.
Where did the money go yesterday? It
went to financials, drugs, chemicals, papers and energies, which is what enabled
the S&P 500 to finish positive by 1 point despite the big downs by techs.
However, this is the third time we have seen the Generals throw cash at the
financials and drugs but it has been lower levels each time. Not good.
What happens now? Well, probably more
of a split market as the cleansing continues. The NDX can reach any of the 3250,
3100 or 2900 levels in a blink of an eye before we hear the growth and value
song. The Generals will come back in to buy techs as they drop to reasonable
levels. Probably the majority of portfolio managers are of the new paradigm
school and think that this is an unprecedented technical revolution. But whether
it is or isn’t, if you buy techs or investor psychology stocks, it is definitely
better to define your risk with an option strategy or a market strategy
allocation that produces a similar result, i.e., 90% T-bills, 10% long-term
leaps on your chosen sector or market. Let the Government pay you part of the
premium but you will preserve your capital and still have the upside. You can do
the same thing with the QQQs, SPYs (Spiders), DIAs (Diamonds) and just adjust
your percentage allocations according to your bullish or bearish expectations.
Stay tuned for Mark Boucher’s timing signals for trend levels and degrees.
| Program Trading Numbers |
||
| Fair Value |
Buy | Sell |
|
14.25
|
15.45
|
13.10
|
Pattern Setups
Last night, Lucent traded down to the
50-51 level and also took Cisco (CSCO)
down 6 and Nortel (NT)
down 9%. Watch for Cisco to set up on your five-minute chart, especially after
the market makers take it down early as they suck up the retail sell orders to
load up for a quick multipoint rally. We
just have to hope the Generals don’t come in too early to defend price levels.
Do the same for (NT)
and (LU).
Stocks with pattern setups are the
plain vanilla blue-chips, GE (GE),
IPaper (IP),
Merck (MRK),
J&J (JNJ),
Bank of America (BAC),
Wal-Mart (WMT),
Circuit City (CC),
and Best Buy [BBY>BBY].
In the tech stocks, all you can do right here is look for trapdoors and opening
reversals because sentiment can turn on a dime. On the short side, it’s easier
to read the market than a stock, especially during this kind of a market. Take
continuation entries on the QQQs and SPYs if we break new lows.
Have a good trading day.