Greed To Panic In Four Days

The tech-heavy NDX 100 started to sell off at approximately 11:15 AM, followed by the S&P 500 and finally the Dow around 12:45 PM. The screen read like the leader board at an easy golf tournament: SFE (-19%), AOL (-19%), BBY (-12%), LLY (-12%), SCH (-11%), ANF (-8%).

We’re down 5.6% from the highs on the SPX, but if it is to correct only .38 of the 48% move from the October 98 low of 923 to the April 99 high of 1362, we will have to trade down to the 1195 level on the SPX, which will be another 6.6% to make a total of 12.2% on the correction. You can do the math if we are to retrace more than a nominal .38. Many of the nifty 50 are down 15-25% already but appear to have room.

If you want to see how your mutual funds are doing, check today’s Investor’s Business Daily and compare their percentage moves Monday to the S&P 500 index fund. This will tell you what they hold relative to tech and other momentum stocks (you don’t have to see their portfolios to know what they hold). If they under-perform by a noticeable amount, they are still nifty 50 top heavy. Also check your mutual fund prospectus to see what they do (and are allowed to do) with derivatives–you might be surprised.

Volume was huge yesterday (1.2 billion shares) and the re-allocation was highlighted by 594 million shares of up volume and 595 million shares of down volume. Breadth was excellent, with advances minus declines at +719 and of course institutional participation was big–a record 27,676 blocks of 10,000 or more shares.

The Russell 2000 pulled back to close at 412.41, just above the 200-day moving average. It must advance because the dogs of the Dow will not take you forward in the “new paradigm” by themselves, regardless of the spin. The connected or cure stocks will return with a rush. Today, if the SPX, which closed at 1289.43, re-crosses its 50-day exponential moving average of 1286.75 on the downside, it will accelerate, so don’t be long at that point.

Target Stocks Of The Day  We’ve had some acceleration down now for four or five days now, and when you get that situation, the specialist can’t help but be long. If we get any kind of a snap-back, some of these oversold stocks could really move to the upside. Fannie Mae [FNM>FNM] re-crossed and closed above its 50-day moving average; it’s a continuation entry above yesterday’s close. Nike [NKE>NKE] is trying to break out of a consolidation below its high at the 60 level. On the bottom fishing side, TRW [TRW>TRW], one of the last dogs to move, traded over 300% of its 50-day average volume and closed at the top of its range on a wide-range bar.

Look for snap-back rallies in any kind of intraday consolidation in IBM [IBM>IBM], AMGEN [AMGN>AMGN], EMC [EMC>EMC], and Pfizer [PFE>PFE]. These are stocks that began to get some fits and starts yesterday. If one of them consolidates anywhere from 7-10 bars and breaks out, I’d probably play the second entry: Let it break out of the trading range, come back into the trading range, then play the second time out.

Program trading numbers  Buy: 10.76. Sell: 6.00. Fair value: 8.42. One quick note: The cost of money varies with different firms, and you’ll see many small sell programs kick in around the 6.5-6.75 level. So don’t be surprised if you see those ticks change really fast. Always watch the cash, and watch the ticks.

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.