Market Needs To Make Its Move
Last week the Fed Watch pounded the long bond, with the current yield now at 6.12%. The Dow (minus 2.8%) and the S&P 500 (minus 2.6%) ran for cover. Crude prices popped again and the oil service stocks ran a bit. The NDX was off 2.2%.
When you are in a news-driven market without any significant leadership, you’ll see a lot of erratic movement in the major stocks. The specialists will do what’s required, but the stocks will be left to trade to the orders and the volume and there will be few, if any, market-making heroes. The upstairs block traders hate to position stocks in this kind of market because liquidity is erratic (and sometimes non-existent), which means losses–and they don’t like to take losses.
The bottom line is the S&P 500 topped at 1376 on May 13 and sold off to 1277 on May 27 for a 7.2% decline. From there, up move topped out at 1336.39, a 60% retracement. The market closed at on 1293.59 Friday. It must first get above the 50-day exponential moving average of 1315 and then above 1336.39, the swing-point high, for any institutional confidence to return to this tape.
Target Stocks Of The Day  With the S&Ps up over 4 points around 8:30 AM ET, it looks they’ll try to reverse the four straight down days and 419-point Dow loss from last week. Some of the stocks that look good to me include: Computer Sciences [CSC>CSC], Intuit [INTU>INTU], Home Depot [HD>HD], Harley Davidson [HDI>HDI] on a cross of the 50-day moving average, Flextronics [FLEX>FLEX], First Data [FDC>FDC], Electronic Data Systems [EDS>EDS], and Echostar Communications [DISH>DISH].
There was a bit of a run in the oil service area, and there are some nice patterns in stocks breaking out of consolidation patterns. I like Global Marine [GLM>GLM] coming out of a cup-and-handle pattern as a position trade, and Schlumberger [SLB>SLB], which can be either an intraday or position trade. Patterson Energy [PTEN>PTEN] is a sleeper coming out of a great pattern: a nice consolidation right above its 50- and 200-day moving averages (the stocks is down from its high of 32 5/8).
Another way to play the energy group is with the energy spiders on the American Stock Exchange, the XLEs. They represent stocks in the energy area and you can sell them short on down ticks. They’re coming out of a pattern similar to GLM’s. This is not an intraday trade. If you want representation in the sector without the risk of an individual stock, the XLEs are a good option. I’ll talk more about these “sector spiders” in the future. I’ve been doing a great deal of research on them, and I think they could really explode.
In this kind of market, the short side is always easy to play with the SPDRS, QQQs (the NDX spiders), or the “diamonds” (the Dow Jones spiders, DIA) rather than individual stocks. The diamonds set up for a short play trading below 104. Keep stops right above 104 for protection. The market dynamics must be negative when it trades below 104–it can’t be just a stop-running probe. But with the way the tape looks right now, we probably won’t get a chance to do it.
Program trading numbers  Buy: 15.90. Sell: 11.35. Fair Value: 13.80.
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.