Connors’ Mid-Week Battle Plan

March 24, 2004
Larry Connors

Our primary trading encompasses the philosophy that markets move
sectors, and sectors move stocks. Here are our thoughts for the day:

Markets:

Last night on

my service, we were discussing the fact that the market was not behaving as a
bull market should. Again today, from oversold conditions, the market
attempted to rally and it again essentially went nowhere (the optimist in me
wants to say that at least it didn’t again go down!). We’re still oversold
and even though we don’t have any official signals for Thursday, it would be
very healthy (longer term) to see the beginning of a 4-6 day rally.

Sector:

Biotechnology: The
Biotech sector
(
$BTK.X |
Quote |
Chart |
News |
PowerRating)–like most sectors–have been
annihilated of late. A glance at the charts tell us: The sector is extremely
oversold, sitting on support (100-MA), and still in a uptrend (rising 50 and
200-MA). That is what the Bulls have going for them. The Bears you ask?
Pretzel-twisting 20- and 30-MAs that point to lower action, a cross of the 10-
and 50-MAs (with the shorter-term 10-MA pointing lower) and terrible price
action and congestion above and close by.

How do we play this? Depending on your time frame and risk profile, the
short-term trader might have played the bounce off the 100-MA this morning,
and placed stops a tick below the moving average. Other more conservative
traders might wait for the previous highs to be taken out before entering.
Finally, the Bears might simply wait for the bounce to end…and hopefully
scale into shorts as the sector possibly approaches the 10 or 50-MA above.

The oversold nature makes me think the Bulls will win the
initial fight–and
if they can somehow manage to break the 50 from a neutral field
position–then they might be in position to win the longer-term battle as
well. The price action should be choppy and with the key resistance above,
those with profits might want to lock in gains quicker than normal. If the
sector reverses sharply, and breaks the 498ish level, then a retest of the
200-MA (around 480ish) should be in order.

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Sector:

Tobacco:
The Tobacco sector
(
$TOB.X |
Quote |
Chart |
News |
PowerRating) has been one of the market leaders up
until mid March. We now find the sector oversold for the first time since
last August. There are a couple of ways to play this one. Bears might put out
shorts as the sector approaches the 50-MA–with close stops above. Momentum
short-term traders might go long on the break of the 50, with close stops
below. Swing traders might wait until the sector closes above the 50–wait
for a pullback–and then buy on renewed strength. Keep an eye on the moving
averages above as they appear to begin to pretzel-twist lower. I will keep an
eye on the 505 level, and if the TOB can break through–then she might be off
and running again.

On the downside–even though the sector is extremely oversold–the potential
can be a test of the 100-MA (470ish) and if THAT goes too, then the 200-MA
around 435ish beckons. Keep close tabs on the price action around the 50-MA.
If it begins to struggle and churn below for a few days, then that means
trouble might be lurking. Better to cut ties with any long positions, then to
put your capital at risk when the wind is not behind you. Heck, there are no
rules that say you cannot enter a day or two later :).

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Until tomorrow,

Larry Connors

Connors’ Mid-Week Battle Plan

BUY THE FEAR, SELL THE GREED

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