Elephant Stampede
The timing of nothing unexpected from the Fed and the six-month window dressing was explosive yesterday. Volume topped 1 billion shares, with over 754 million trading on the upside (more than recent total volume figures). There were over 21,000 blocks of 10,000 or more shares–I’d say the elephants were participating.
I thought it was interesting that the Dow Transports and Utilities finished in negative territory (I’m pointing it out just so you know what really happened yesterday. The program trading after the Fed announcement was fast and furious. Most of the big-point moves were on the market, on-close fiascoes in the big stocks–they just happened to be stocks that are among the largest holdings of many funds. General Electric (GE) which traded 600 shares at 111 1/8 at 4:00 PM. The next trade, at 4:05, was 727,000 shares at 113, followed by another block of 413,000 at 113. Texas Instruments did the same thing at prices of 142 3/4 and 145. These are just two examples; there were plenty of others in key stocks that were at their highs or had just broken out.
Coincidence? Hardly. If institutions were trying to move more cash into the market and couldn’t get enough futures during the day at no premium to fair value, they had to buy the underlying stocks. From the looks of it, there might be more to come today–I don’t think the programs are finished. Maybe some of the institutions had a little too much cash to show and they felt the Fed move gave us a glass ceiling for a while and they didn’t want to get caught with too much cash at the end of the quarter.
Key point: Watch for Slim Jims (long, tight consolidations) on your five-minute charts in the major S&P stocks. Look for when the programs are finishing these trades in the big-cap stocks–some of them will come to new intra-day highs and then explode.
Having said that, there’s clearly been some real buying in the drugs the past two days, aside from the programs. Most of them have been trying to form bases around their 200-day moving averages the past six to eight weeks. We mentioned Merck (MRK) the other day as a position trade at 70 and it closed at 74 yesterday, crossing and closing above its 200-day moving average, as did Warner Lambert (WLA), Schering Plough (SGP), and American Home Products (AHP). Take a look at these stocks, but only on pullbacks to their 200-day moving averages–don’t get caught in any continuation entries. On pullbacks, these probably become position trades; if it turns out as an intra-day trade, fine, take it, if that’s what you’re into. But remember, funds have to own growth stocks.
Target Stocks Of The Day  Stocks that could have good follow through today include Earthlink [ELNK>ELNK], American Online [AOL>AOL], crossing its 50-day moving average, Veritas [VRTS>VRTS], and CNET [CNET>CNET].
| Program Trading Numbers | ||
| Buy | Sell | Fair Value |
| 13.20 | 9.35 | 12.30 |
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.