Congestion The consolidation continues, as the S&P made a new high yesterday at 1407. A close below the low of 1394.68 will confirm 1407 as a swing-point high and a change in short-term direction. Technical shorts will get involved today when the S&P trades below that low (stops will be just above it).

Yesterday was a pure downtrend day after the gap-up opening because of the early futures hype. Once the open was reversed to the downside, it was never re-crossed. Volume was very light (under 700 million), while the breadth and volume ratios were negative the entire session. Institutional blocks came in under 14,000–very light. The Semiconductor index (SOX) and the Morgan Stanley High-Tech 35 (MSH) both were green from noon until the close, along with the energy index (XOI) and the Russell 2000. But drugs, retail, and banks were red.

The futures are down early today, and if that continues it will enable the specialists to gap some stocks down, hopefully setting up some early snap-back trades like Opening Reversals and Trap Doors (see the Guide to Conquering the Trading Markets), after which we’ll see what the day’s trend will be.

The media and brokerage spin machines are working overtime to prevent any significant corrections. I hope they succeed, because traders need that volatility that accompanies upside momentum, with short, quick pullbacks that provide good setups.

On the earnings front, HDI reported 44 cents vs. 36, and AMGN reported 50 cents, topping the 46-cent estimate. AMGN traded as high as 73 last night in after-hours trading. Take a look at AMGN’s chart. It’s up 25% in 10 days preceding that news. Some institutions may be on “page one,” but price and volume are reality and can’t hide from good traders. You’ll almost always see any good announcement in the charts before it happens; it’s very rare that someone doesn’t have that information–it’s all part of the research game.

Target Stocks Of The Day Setups were pretty thin yesterday due to all the closes toward the bottoms of ranges and the light volume. Four stocks that remain in consolidation that you should stay with are Schwab [SCH>SCH], Merck [MRK>MRK], Tricon Global Restaurants [YUM>YUM] and AES Corp. [AES>AES]. Determine your entry points and decide whether you’ll play them from a position standpoint, intra-day, or both.

Program Trading Numbers

BuySellFair Value12.208.3010.25Also setting up are Honeywell [HON>HON], Computer Sciences [CSC>CSC], Adobe [ADBE>ADBE], AT&T [T>T], Nortel Networks [NT>NT] and United Technologies [UTX>UTX].

Editor’s note: If you want to learn more about Kevin Haggerty’s trading strategies, click on the link below to go to his new series of tutorial articles.