Feeding Frenzy

Yesterday brought new high closes on the S&P 500 and NDX on breakouts of major cup-and-handle patterns. There was a feeding frenzy in tech and Internet stocks, as well as the other nifty institutional favorites.

Schwab (SCH) joined the par club, closing up 9 5/8 at 103 3/8, following Tellabs (TLAB) from last week. AOL is on another planet, up 67% percent after joining the par club on March 15 (yes, I mean 1999).

Despite the gap yesterday, entry was possible in Solectron (SLR) and Level One Communications (LEVL). The strategy remains taking what the institutions give you (momentum) and thinking about how to play the downside retracement of the September-October lows when the market shows its hand.

They took the big stocks up early and hard (half of the +2.1% S&P 500 move was on the open) on the second day of reinvestment of new funds, but volume was light given the magnitude of the move.

Target Stocks Of The Day  Momentum stocks with good patterns after pullbacks from their highs include Macromedia [MACR>MACR], Associates First Capital [AFS>AFS], Lexmark [LXK>LXK], Safeguard Scientifics [SFE>SFE], EMC [EMC>EMC], Cablevision [CVC>CVC], Circuit City [CC>CC], Gucci [GUC>GUC], and Applied Materials [AMAT>AMAT].

Remember, don’t take the first trade after the stock has been up 4-5 points. We will get some pullbacks during the day; wait for things to form up, and for the bids to start coming in. It will be very obvious–the elephants can’t hide. Until that happens, don’t take any action.

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.