Market Plays Out Perfectly
Well, it could not have played out more perfectly. Yesterday’s
fade of the opening, as mentioned in yesterday’s column, played out to a “T.” In
addition, the move higher was stymied by the 955 level, which was also noted
yesterday. Â
I continue to play the stocks in the chip sector simply because of all the
speculative money swirling around in there. Any significant weakness in the
overall market and this sector will light up like a Christmas tree from a
trading perspective. If, and that is a big “if,” the market deteriorates, it
could be one of those pockets of extremely good trading that all traders dream
about. Keep you eyes focused squarely on the SOX and its components for trades.
With yesterday’s pretty negative close, the market is poised for some
potentially nice trading opportunities. Naturally, a close below Friday’s close
would have been preferable to term it a Key Reversal Day. I am looking
for a close below 920 on the S&P futures to incite a little panic. A break of
this level would certainly shake out some punch-drunk longs who showed up last
week to the party. This will either set the stage for a re-entry to the longside
or another leg lower, indicating that this was just another bear market
rally. Take a look at a 10-year chart of the Nikkei to see how many “bottoms” it
has put in. Do not discount that chart.
Actually the whole 920-926 level is full of potential support areas. The 1998
low (on the SPX) of 923, and some other retracement levels going back several
years. This area will offer two things I suspect:
- Great HVT trades
- An ideal way to position yourself on a slightly longer-term time frame.
For me, a break of this area will allow for some good short entries on the
semis. Look at the hourly charts of most of these stocks going back to Nov.
19. Some have either broken or are on the verge of breaking their lower
regression channel. The nice thing about this trade is that there is opportunity
either way. If the punch-drunk bulls come roaring back, great, the minor
pullback yesterday will simply serve as a great launching pad for higher prices.
Conversely, a break could ignite some good old-fashioned panic selling.
Revisiting a stock that has been on my radar screen for many months,
AutoZone
(
AZO |
Quote |
Chart |
News |
PowerRating), appears as though it may
be running out of steam. A break of the 79.85 level gets me very interested on
the short side. A break may set the stage for a move down to 74.40, or even
better down to 70.90. If the stock were to really take it on the chin, along
with the overall market, a move to the mid 50s is not out of the question.
Naturally this is a longer-term play and should not be considered unless your
time frame is many weeks. Nonetheless, a stock like
AZO, which has been a speculative darling, can offer the timely short
seller substantial gains. The trick is the timing. This stock has been
relentless to short sellers, so use a tight stop.
Looking ahead to today’s action, not only will the market have to deal with
yesterday’s weak action, but also the news out of AOL
Time Warner
(
AOL |
Quote |
Chart |
News |
PowerRating) regarding a rather bleak outlook. Again, I am
not making a trade based on this news, but simply trying to factor it into the
“larger” picture. AOL may offer some decent intraday trades based on a five- or
15-minute chart. As of 5:30 AM PST, it is trading down $1.00 from the NYSE close
at $15.21. Look to $14.52 as a pivotal level for trade entries.
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| *965* | 1153 |
| *961-62* | 1146 |
| 955 | 1142 |
| 948 | *1131* |
| 939 | *1117.50* |
| 934 | 1105 |
| 929 | 1100.25 |
| 923 | 1085 |
| 915-16 | 1081.50 |
* indicates a level that is more significant
As always, feel free to send me your comments and
questions. See you in TradersWire.