Looking For The Next Cue

• December 12, 2001
• Dave Floyd

Wow, add a little
negative earnings news compliments of Merck
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deflate a market that was already lurching to higher ground on the assumption
that things were going to be just fine. That thought process may need to be
re-thought given what the Fed also said in their side notes to yesterday’s rate
cut. Remember though, as traders, these are just observations of what may
or may not happen. As always, trade what the chart tells you, especially
intraday.

Revisiting what is proving to be an entertaining
position as far as intraday traders are concerned, Alliant Tech Systems
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notice on the chart below that there were several nice entry points off the
74.55 level late last week, (Points A-B and C-D) all the while remaining short
as a position. Yesterday’s fierce run-up stopped me out just above 74.55 (Point
E) on my position for a nice profit, but allowed me to re-establish the position
(Point F) once the 74.55 level was broken later on in the day.

All in all it was a relatively quiet day with
the exception of the late day sell-off, which I suspect will keep things
interesting going into Wednesday’s session. The narrow intraday ranges we have
been experiencing lately are a sign that this market is clearly looking for its
next cue. History has taught the market to “anticipate” recoveries
over the years, and the market appears to have repeated this process yet again.
However, now the market needs proof that this run-up has been justified. Tuesday’s
bombshell from Merck will certainly not help matters and as mentioned
earlier, the Fed’s comments that the situation going forward is more likely to
remain weak as opposed to showing pockets of strength, adds yet more uncertainty
to the precarious heights this market finds itself at.

I am not here to guess where we go next — I will
let the charts tell me. As of last night’s close, the S&Ps are yet again on
shaky ground, closing below key support at 1140. The Nasdaq remains above key
support at 1608. The
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closed just below its 200-day moving average at 566.40, so this level will
remain pivotal. Incidentally, if you are not closely watching the SOX
intraday, you are taking a portion of your “edge” away. Meanwhile the
Dow has some key support areas within striking distance: 9850,
9795 and 9707.

Again, the one-minute bars were not exhibiting
enough of a range for “quality” setups, so I will remain trading on
five-minute bars. If, however, the market begins to exhibit some weakness
combined with some genuine panic and fear, the one-minute setups will once
again offer the best risk/reward trades.

Longer Term Plays: (several days/weeks)

While I like these chart patterns from the long
side, I find myself wanting to see a little firmness in the overall market
before establishing. As always, you want as many factors on your side to
increase the probabilities. Use protective stops.

Key Technical Numbers:

As always feel free to send me your comments and
questions. Additionally, I would like your feedback, positive or negative,
on the longer-term patterns I have been sharing. I trust they have been
helpful.

Dave