Fragile Market is Characterized by Retracement
Prior to
Friday’s triple-witch expiration, the five-day move in the Dow was
+177 points and the S&P 500 advanced 16 points. This of course was led by
tech stocks as you well know and the Nasdaq 100 (NDX) danced by itself,
advancing 129 points, or 4 percent, in those five days. It is significant to
note that the five-day average of market internals was as follows: only 55 new
highs and 228 new lows; advances minus declines (five-day moving average) was
-376; and the advancing volume divided by the advancing volume plus the
declining volume was less than 50% at 0.46. The percentage of New York Stock
Exchange stocks above their 200-day moving average stood at only 25%, which is
horrendous. To top it off, the long bond had declined five straight days to
yield 6.38% and the CRB closed at a 21-day high Friday — yet the major averages
were up. The SPX is locked in a 3.2-percent trading range between 1389 and 1433
from close to close over the past 22 days after topping 1400 on Nov. 16. We have
had a 17.3% rally off the Oct. 18 low of 1234 to the December high of 1447
without anything that resembles a retracement.
| “Even Abby Cohen is giving you a heads-up saying that year-end 2000 won’t give you more than 8% or 9% from current prices in the Dow.” |
The Generals have pushed to extremes the
narrow group of stocks that influence the major averages. Even Abby Cohen is
giving you a heads-up saying that year-end 2000 won’t give you more than 8% or
9% from current prices in the Dow. Having said that, the Generals will make
their payday this year and probably get the S&P 500 to +20% on the year. Any
pullback to the October 1999 low from here will more than likely be 38% or less
before the final year-end push and the New Year reinvestment period. It will be
a much better move through the New Year if we head south through at least the
50-day exponential moving average (EMA) of 1381 or even to the 38% retracement
level of 1366.
Talk about retracements and how fragile
this market environment is, Tandy [TAN>TAN] was a 4.3-bagger this year
having risen from a low of 18 1/2 in December 1998 to 79 1/2 just 10 days
ago. On Friday Tandy opened at 46 1/4, down 19 3/4 points, or 30%, on only
3.6 million shares, which is absurd because the Generals never get enough volume
on these panic openings to justify giving up that much price. Tandy was a 91
relative strength/87 EPS stock in Investor’s Business Daily, in addition to an
“A” on Industry Group Strength and “A” on sales, profit margin, and return on
equity. It appears that the research department in the sky was active the day
before the same-store sales announcement, as 3.2 million shares traded Thursday
for the first time since Nov. 5 when the stock advanced 3 1/4 points. Tandy
closed down 2 5/16 Thursday. Nice trade by some of the Generals that are on that
key research list.
The opening was a gift to any daytrader
that follows these preopening indications on Dow Jones newswire. Tandy opened at
46 1/4, ran to 55 1/2 before settling down to the 48-52 level and closed at 53.
Almost all gaps down 10% or more in blue-chip stocks that aren’t caused by fraud
or accounting irregularities can be played on the opening. You have to thank the
specialist and those momentum players that blow out stock at the first hint of
change. They are not investing. They are just trading numbers that are moving
higher behind the veil of buy-and-hold. It’s interesting that the regulators are
so concerned about the daytrader that bought Tandy on Thursday thinking it had
reached an intraday bottom at 65 but got stopped out at 64 3/4 when 65 didn’t
hold but lost only 1/4 and went home flat. Hello? But it’s okay for a so-called
fundamental investor to lose 30% overnight. Not one analyst was saying “sell” on
Tandy, or unless I missed it, did any step up and say “buy” at 46 1/4. They are
afraid to, because it’s too much of a decision to make. The stock traded over 20
million shares and closed up 6 3/4 from the opening. So after the fears
subsided, there were some buyers. Fear grips the Generals just as it does the
retail investors, except the Generals are supposed to be the professionals, not
the retail investors.
Program Trading Numbers | ||
| size=2>Fair Value | size=2>Buy | size=2>Sell |
| size=2>19.10 | size=2>20.30 | size=2>17.90 |
Pattern Setups
On the buy side: DoubleClick
[DCLK>DCLK], Citrix Systems [CTXS>CTXS], Brocade Communications
[BRCD>BRCD], Conexant [CNXT>CNXT] (above Thursday’s high), Red Hat
[RHAT>RHAT], Redback [RBAK>RBAK], Applied Materials [AMAT>AMAT],
Vignette [VIGN>VIGN], and Yahoo! [YHOO>YHOO].
Have a good trading
day.