Directional Change Still In Question

• November 10, 1999
• Kevin Haggerty

Directional Change Still In Question The only up yesterday was the S&P futures, which were up 11-12 points pre-opening. The Spiders (SPY) gapped open a half-point, then immediately headed south. A tight, trading-range market was in effect from 12:00 to 4:00 PM ET–a range of 136 1/2 to 137 on the Spiders, which equates to five S&P 500 cash index points.

The S&P cash closed at 1365.20, which is still above the low of the high day, so no change in direction yet. Short-side trades can be taken below 1362.65 with tight stops just above, and second entries will probably be best; that seems to be the norm rather than the exception now. The Diamonds (DIA) can be shorted below 105.84, which is the 50-day exponential moving average (EMA). These are just reference points if the market continues to retrace the current rally.

There are a lot of young, knee-jerk portfolio managers out there reading the newspapers just like us, and they don’t do any better

Breadth and volume ratio were both negative yesterday as volume picked up to 851 million shares. Energies and gold led, along with some cyclicals, with a positive bias in the chemicals and papers. Most of the tech indexes finished slightly negative and the cash register was rung in the Internets and financials, which tells me a retracement of the current rally has begun. But as always, we will let today’s tape decide that.

Microsoft’s volume (28 million) was less than half the prior day’s, and it closed off 1 1/16. Pretty good performance.

If they decide to come for them today (it’s PPI day), early entries on your five-minute charts in the DIA will be above 106.50 and in the S&P cash above 1369. These are early reference points if you’re in the market today and you’re checking the market dynamics.

Yesterday Cisco (CSCO) announced numbers of 24 cents, and traded up over 3 points last night; pre-opening it’s up another point to 78 1/4. This is the same stock they threw away a week ago, dropping it to 65 1/8, on rumors the company wouldn’t hit its numbers, etc. There are a lot of young, knee-jerk portfolio managers out there who are reading the newspapers just like us, and they don’t do any better.

Pattern Setups In the energies, watch Schlumberger [SLB>SLB] and Halliburton [HAL>HAL]; in the papers, International Paper [IP>IP]; in the chemicals, Union Carbide [UK>UK]; in the techs, Lexmark [LXK>LXK], BMC Software [BMCS>BMCS], Compuware [CPWR>CPWR], EMC [EMC>EMC], SDL Inc. [SDLI>SDLI] and Applied Micro Circuits [AMCC>AMCC].

Program Trading Numbers
Buy	Sell	Fair Value
6.95	4.50	5.65

Bottom fishing: Clorox [CLX>CLX] broke out of a four-week base at 44 yesterday on its highest volume in several months, but came back in and closed inside the base at 43 1/8. Position strategies can be initiated on a move above 43 7/8, as the stock comes out of the base again. (The stock is down from 66 1/2.) McDonalds [MCD>MCD] hit a high of 47 1/8 yesterday, up from 39 3/4 in nine days from the time bottom fishers saw the Generals coming for it in advance of good news (as always). You pay the big commissions, you get the good call.

Remember, you only have price and volume, not information. The garbage on TV can help you about. . .zero. It’s always after the fact. The institutions are always getting the real research call because they pay for it, which is as it should be. You must learn to spot that force as it starts to move, because they make lots of noise, regardless of how they think they’re hiding the market impact. If it wasn’t like that, we wouldn’t have the great auction market we currently have

Happy Marine Corps birthday to any of my fellow marines out there!

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