Market Awaits
I’m coming on a little early because today’s a “straddle day:” I’d rather buy a straddle (long put and call with the same strike price) on this market in preparation for the obvious overreaction to the CPI. I’m making my list in the event they gap the market up or down.
Yesterday had a positive tone, with the Dow, NASDAQ, and S&P all finishing on the plus side. Breadth was positive, but overall, volume was still light–to be expected in front of this week’s excuse, today’s much-ballyhooed CPI number. Most of the people talking about the CPI couldn’t even tell you what the PPI was last week.
The erratic nature of this market certainly dictates caution in the way you manage risk. For example, Jabil Circuit (JBL) was a disaster after the close last night because they announced they had some design delays, even though all their numbers were super. The stock dropped down to around 41 1/2 in after-hours trading after hitting a new five-year high at 55 3/8. Watch what happens with them; it should be interesting.
The S&P 500 must trade and close above 1311.89 to establish as 1287.89 as a swing-point low, and then trade above the 50-day EMA of 1313.68 to get the institutions buying the offer and fighting with their brokers because they aren’t getting their share of the volume. That happens when more than one institution is on the same side and the market is running. They would rather buy the stock higher with company than alone on weakness. Some things never change.
The swing point high we need taken out is 1336.39. I repeat these numbers constantly because they’re inflection points and you have to be aware of them.
If the reaction to the CPI is negative, look for sell entry if the S&P cash trades below 1287.89, then 1277.30; if it does, the trip to 1240-45 (around the 200-day MA) will be a blink. I am always cognizant of these inflection points and how the market and stocks react at these key numbers. A positive outlook on a stock combined with positive market dynamics means a higher-probability trade.
The S&P futures were up around 3 points, and all the pre-opening news is revolving around the CPI. Like I said, I’m making up my straddle list in case they gap them up or gap them down. It could be a good trading day.
Target Stocks Of The Day  There were quite a few stocks that set up last night, including Ameritech [AIT>AIT] and SBC Communications [SBC>SBC] in the baby Bells, VISX [VISX>VISX], Alltel [AT>AT], Bowater [BOW>BOW], and CSX [CSX>CSX], which acted well along with all the rails.
Also watch Ascend Communications [ASND>ASND], which is a seven-bar pullback to its 20-day moving average, Nokia [NOK>NOK], and Comverse Technology [CMVT>CMVT]
Remember, follow the JBL saga. See what the analysts say, track the volume, and put it in your notes for future reference.
Program trading numbers  Buy: 15.60. Sell: 11.00. Fair Value: 13.45.
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.