Elephant Stampede

Elephant Stampede  Growth averages down, Dow up, mainly due to JP Morgan, Alcoa and International Paper. AOL was down 8 1/2 while Alcoa was up 7. Go figure.

The elephants couldn’t get through the doors fast enough for techs, drugs, brokers, specialty retailers, and anything else they have big profits in. Many of the over-weighted (but not over-valued, according to Abby Cohen late in the day) big cap stocks lost 4-9% on the day. It was a mini panic by the institutions, as they took profits in over-weighted sectors and threw that money at the cyclicals because most of them are so obviously under-weighted.

Money in the cyclicals should be interesting to follow. If these stocks are going to have any shelf life other than an institutional trade, we’d all better buy puts on the long bond. If the economy is that strong, Mr. Greenspan has nowhere to go but to raise rates.

The QQQs and SPDRS were excellent short trades, with the QQQs breaking below 107 5/8 to a low of 105 5/8. The SPDRS moved below 134 1/2 to a low of 132 11/16. For those of you who sell strength in down trends (best way to do it), there was an excellent short trade in the SPDRS at the 135 5/8 level, which was a 62% retracement from the low. The SPDRS opened up at the high of the day, the move back on the retracement was below the open, and there was an absolute downtrend in the S&P all day despite the Dow/cyclical strength. It provided an great opportunity to get in on the short side even before the downside break below 134 1/2.

Breadth was excellent all day, as the institutions expanded their horizons. Aside from the emotional cyclical buying, the Russell 2000 ran to 425 before giving some back on the close. Volume was big at 959 million, and aside from price, the re-allocation is evidenced by the 510 million shares up volume and 418 million shares down volume, even though the S&P cash finished down 21 points.

Target Stocks Of The Day  There aren’t many continuation patterns today because of the wide-range bars with most stocks (other than the cyclicals) closing below their midpoints or near their lows. Look for intraday buy setups on your five-minute charts in the following stocks: IBM [IBM>IBM], Wal Mart [WMT>WMT], Texas Instruments [TXN>TXN], EMC [EMC>EMC], Cisco [CSCO>CSCO], Colgate [CL>CL], McDonalds [MCD>MCD], and Proctor & Gamble [PG>PG]. These stocks have all fallen back to where they had some acceleration, either their 20-day moving averages or their breakout points

Program trading numbers  Buy: 11.26. Sell: 6.78. Fair value: 8.82.

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.