Cyclicals Do It Again

The stampede into cyclicals continued yesterday, along with a cutback on many momentum stocks like PFE and SCH, both off more than 10%. Volume was over one billion shares, and had the same balance as Wednesday: advancing volume over declining volume by a 1.2 to 1 ratio. Breadth was good again, as a wider range of stocks attracted the institutions.

The S&P 500 gave another classic downtrending day with excellent entry points and a textbook 1-2-3 buy entry off the 131 low in the SPDRS, which rallied to 133 1/8. For the second day in a row, the SPDRS were unable to trade above the opening price (133.43) after the first five-minute bar. Save the SPDR five-minute charts from Wednesday and Thursday. These were classic trending days with retracements and very clearly defined entry signals.

Yesterday there were excellent snap-back trades with clearly defined entry points in IBM, WMT, CSCO, and TXN. Aside from the Dow and the cyclical stocks, it was a classic downtrending day, but we were still able to operate from the buy side.

Montgomery put the kill on EMC, but it was a great fade, as the stock opened down 14 1/8 at 111, just below the March 23 low of 111 13/16, which is exactly where the stock began its 21% move to 134 15/16 high on April 9. After the opening on 1.4 million shares, it ran straight to 117. Compaq showed you the way, and EMC gave you a second chance. Hope you caught it.

After being down the entire day, the NDX 100 rallied in the last hour and finished positive on the day and at the top of its daily range. It also bounced off its 50-day exponential moving average on the seventh day down from its highs. Keep checking those three-, five-, to seven-day pullbacks. Also, three of the four Nasdaq generals finished up, led by Microsoft. I’m looking for an up day, barring some early, inane noise from the government numbers.

Target Stocks Of The Day  I’m looking at the momentum stocks that finished at the tops of their ranges yesterday and are set up for continuation entries today: Yahoo [YHOO>YHOO], Sportsline [SPLN>SPLN], Microsoft [MSFT>MSFT], [BCST>BCST], Northern Telecommunications [NT>NT], Home Depot [HD>HD] and Wal-Mart [WMT>WMT].

Look for intraday consolidation set-ups in the following three stocks (they should be rewarding): Merrill Lynch [MER>MER], Sun Microsystems [SUNW>SUNW] and IBM [IBM>IBM]. There are a lot of people who want to see Merrill over par.

Program trading numbers  Buy:11.02. Sell: 6.26. Fair value: 8.73.

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.