Deceptive Appearances
Note: There will not be an audio version of the commentary today.
Yesterday was ugly outside of energy and some of the basics. The S&P 500 closed below the low of its high day (thus the directional change), so before anything good can happen, the S&P has to at least trade above yesterday’s low of 1356.59.
It was the kind of day you just turn the page on and start again. The S&P futures were negative all day and the cash went south after 11:00 a.m. after trying to positively diverge for a while.
With only six cyclical stocks accounting for 91 points (on only 18 million shares out of the 954 million that traded), the Dow couldn’t withstand the 3:20 p.m. knife from the futures and managed just a 14-point gain. The Dow is basically useless right now, with each point move in a Dow stock accounting for 4.58 points in the index. (The Dow divisor is currently 0.21825395; you simply divide 1 by the divisor to get 4.58.) Example: Alcoa (AA) was up 6 1/4. Multiply 6.25 by 4.58 and you get 28 5/8 Dow points. When the divisor changes, we’ll let you know. To be nice, let’s just say the Dow can be gamed under the current circumstances.
Target Stocks Of The Day  Our Monday call on five of the basic stocks that the elephants came for yesterday was early, but yesterday’s moves in these stocks were too exaggerated to chase today. Some stocks that are set up in continuation patterns include Jabil Circuit [JBL>JBL], Harley-Davidson [HDI>HDI], Abercrombie & Fitch [ANF>ANF], Times Mirror [TMC>TMC], United Technologies [UTX>UTX], and Lockheed Martin [LMT>LMT]
A couple of final notes: Merck (MRK) and Pfizer (PFE) both cracked without stopping at their 200-day moving averages yesterday, and the drugs acted poorly overall. Unless these two can trade back above their averages, we’ll stay away from the drug stocks. Also, Microsoft (MSFT) is getting close to its key 80 level; psychologically, it should hold there. If it doesn’t, there could be a real downdraft in the rest of the techs. But look for some buy patterns in the 80-81 level.
Program trading numbers  Buy: 9.58. Sell: 4.46. Fair Value: 6.96.
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.