Financial Opportunities

Financial Opportunities  Selling bonds, buying stocks, continuing IBM saga, new highs in the Dow, but yesterday’s rally wasn’t nearly as strong as Wednesday’s.

I thought the brightest star, with the exception of the fade on EMC (I hope you’re all starting to get the idea about how that stock operates), was the Russell 2000 breaking out of a seven-day consolidation to close higher at 428.85, which as I mentioned yesterday is a big positive for the overall market.

Despite the re-allocation between bonds and stocks, the bank index and several financial stocks provided some good patterns yesterday (confirmed by several stocks in the same group–always a stronger signal). We’ve had three higher extended closes in a row, so be careful and use tight stops–don’t chase anything that gapped and ran 3-5 points yesterday. You might get pullbacks in some of those stocks, but there are other names that look a little more interesting (like some of the financials) that didn’t gap.

Around 8:30 a.m. ET, the Four Generals of the NASDAQ are off slightly (they have to take a rest after the lambs were fleeced yesterday in the pre-opening), and the futures are down approximately four points. But that has become less important–it really just tells us whether the market is likely to gap down or gap up.

Target Stocks Of The Day  As I mentioned, some of the financial stocks that set up yesterday look interesting. For you index traders, watch the bank index [$BKX.X>$BKX.X]. In individual stocks, keep an eye on Chase Manhattan [CMB>CMB], BankAmerica [BAC>BAC], State Street Corp. [STT>STT], which is sneaking up on its five-year high above 91 3/4, Bank of New York [BK>BK], and Citigroup [C>C].

There are also some pullback and consolidation setups in explosive stocks that could challenge five-year highs. These are lower volume issues, but if the fast money even smells an institution or two, they’ll run these stocks. Watch Brinker International [EAT>EAT], Intimate Brands [IBI>IBI], Calpine Corp. [CPN>CPN] and Factset Research [FDS>FDS]. Don’t oversize your position and keep your stops tight.

Program trading numbers  Buy: 10.43. Sell: 5.36. Fair Value: 7.92.

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.