Could Be A Choppy Ride
The FOMC meeting is out of the way–we’re all still here–with the expected results: no rate increase but a tightening bias.
By the way, no one seems to have mentioned that housing starts made their sharpest drop in four years; maybe next week everyone will be talking about recession. Don’t try to figure it out, just react.
At 1:15 p.m. ET yesterday, the bonds were up 17-18 ticks, but by 2:45 (after the Fed announcement) they were down 16-17 ticks, and finally finished even on the day. What was the thought process in that move? The S&P futures went from about up 7 points to down 10-11 points in the same time frame and finished above the midpoint of their range.
Program selling kicked in during this period but the institutions did not rush for the exits. Volume was light but breadth was not nearly as negative as it would have been if the elephants had been selling in size. You’ll see a rush to the exits if the S&P cash moves below 1314.55 or the OEX drops below 663.76; closes below these levels could extend a correction to 1280 (S&P) and 630-640 (OEX).
One thing is evident in the price action of the past two weeks: There’s not much price persistency in trades–up 2 one day, down 2 the next. Intraday trading remains the best way to control risk.
Right now portfolio managers are concerned that earnings may not be strong enough to sustain high valuation levels, especially if interest rates kick up and P/Es get compressed (which would push stock prices lower). We might be in for a choppy period, barring any news announcements.
Last night after the close, Dell traded down 2 3/4 two 41 1/4 after reporting great–but not super-great–numbers. They showed margins of 21.5% vs. fourth quarter’s 22.4%. Yes, that’s down slightly, but there’s not another stock in the institutions’ portfolios with margins of 20%. If Dell sells off, you can rest assured they’ll come stampeding back in for it.
Target Stocks Of The Day  Watch for continuation entries in Safeguard Scientifics [SFE>SFE], Network Appliance [NTAP>NTAP], Adelphia [ADLAC>ADLAC], FDX Corp. [FDX>FDX], Ameritrade [AMTD>AMTD], MCI Worldcom [WCOM>WCOM], and Schwab [SCH>SCH], which is in a five-bar (daily) consolidation just above its 10- and 50-day moving averages; if they come for it, the stock should get a good move.
Some Dow stocks that have set up include American Express [AXP>AXP], Allied Signal [ALD>ALD], and Boeing [BA>BA].
As I sign off, the S&Ps are up 4.30, the bonds are up 11 ticks; looks like we’re off to a pretty good start.
Program trading numbers  Buy: 6.50. Sell: 2.10. Fair Value: 4.40.
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.