High Relative-Strength Stocks Continue Momentum
Dr. Strange Market showed up Monday instead of our good friend The
Turk. The institutional Internets continued their march with multipoint upside
moves. The high relative strength value stocks continue to exhibit powerful
upside momentum as they get run up by the momentum players. BRCD ran up 46, or
17.9%, as SoundView initiated coverage with a “Strong Buy” rating —
give me a break. SDLI was up 16% and EXDS was up 16%…stocks move like that
when the players want them to, assuming no deal announcement. Dr. Strange showed
his game as the NYSE advance-declines were minus 1260 and the NYSE
upvolume-to-downvolume ratio was negative by 202 million. New highs were 54,
while new lows were 147. And the percentage of NYSE stocks trading above their
200-day moving average was down to 32 percent in spite of the recent rally.
On the other side, we had the Dow up 86 points, led by, of all people,
Telephone [T>T] and Coke [KO>KO] — rediscovered again. Microsoft
[MSFT>MSFT] and IBM [IBM>IBM] chipped in as these four stocks accounted
for 91 Dow points. Go figure. The S&P 500 finished flat, only off 1 point.
And the Fantasy Index, the Nasdaq Composite, was up 23 points, or 0.7%. This
decoupling of reality makes it even more imperative that your trade selection
should be zeroed in on the funny-money stocks that are being run up with
reckless abandon. Keep looking for those patterns that signal potential moves
and keep your stops tight. Don’t take them home overnight unless you have option
protection with puts or some other similar strategy.Â
The QQQ’s gave us a wide-range bar reversal day yesterday, as it ran to new
highs and closed below its open on its intraday low. It also closed below the
prior day’s open and close. The S&P 500 cash gave you its fourth day of
consolidation as it closed above its midpoint. But only 121 of the S&P 500
stocks advanced and 360 declined, which is the fourth day that this has
occurred. It points out how narrow the move is right now. For you trivia buffs,
it marks the 25th day in a row that the Nasdaq Composite has advanced–not one
minus day during that period.
Watch what happens as everyone runs out and switches to OTC funds and out of
the S&P 500 index funds. It happens all the time with the Select funds at
Fidelity and the other mutual funds that have select funds. It’s a barometer. As
we go, I will show you how to combine QQQ’s, Spiders, Diamonds, and index
options to create synthetic mutual funds for your IRA’s company pension plans.
Combine this with Mark Boucher’s timing models and you will have a powerful
combination going forward.Â
Program Trading NumbersBuySellFair Value5.853.554.75
This new paradigm in investing will dramatically lower mutual fund fees just
as it has stock commissions. Why pay a mutual fund to manage your money when
most funds can’t beat the indexes? You can construct your own. Investors, in
their company’s 401K plans, can only be invested in what the company gives you.
The SEC is currently looking into the obvious problem of not enough flexibility
of choice, which hampers your long-term retirement benefits. Take a look at your
long-term choices and compare to the indexes. See how you do if you are captive
to a limited choice. Continue to educate yourself on all your equity
investments, regardless of your timeframe.
Pattern setups If the momentum players desire to play today, Nextel [NXTL>NXTL],
DoubleClick [DCLK>DCLK], Emulex [EMLX>EMLX], Network Solutions [NSOL>NSOL],
Gateway [GTW>GTW], Echostar [DISH>DISH] (only take above Friday’s high),
Harmonic [HLIT>HLIT], and Tandy [TAN>TAN] (only take above Friday’s high).
On the short side, QQQ’s are set up below Monday’s low. Go small on the first
entry, if at all. The second entry is usually best if we decide to go south
today. Keep your helmets on, we’re at pretty lofty levels with some air
underneath. Have a good trading day.