Microsoft Anticlimax

• November 9, 1999
• Kevin Haggerty

Microsoft Anticlimax The big anticipation of Microsoft (MSFT) selling off and sending the market south obviously didn’t happen. The stock finished in the top 15% of its range at 89 15/16, up from a low of 83 15/16, on big volume of 61 million. That’s real volume, not double-counted OTC volume.

There were certainly many institutions that took advantage of MSFT’s dip to its 200-day exponential moving average (EMA) of 84.60, which is the first time the stock has done that since October 1998. So much for the selling in the S&P futures that took them down 17 points before the opening. The futures finished essentially flat and the S&P cash index closed up 6.75 on the day. Bonds slid 5/32 without any excitement during the session.

The herd mentality prevailed again as the Internets took off

All the institutional Internets were flying except for CMGI. AOL is advancing the same parabolic way as its first big move up. As mentioned in previous commentaries, when these stocks started to move again, the Generals had no choice but to chase them in fear that they’d be outperformed if the fund down they street bought them and they didn’t.

Volume (802 million) was tentative yesterday, breadth was negative, but the up-down volume ratio was positive by 105 million. Big-cap stocks still prevail, as the number of NYSE stocks trading above their 200-day EMAs has only risen to 32%–not good.

The S&P ended with an inside day, closing in the top of its range at 1377. The bulls will try to push it above the 1380.80 high today. But be prepared for more choppy trading range action as we all wait for Mr. G. (Gets old, doesn’t it?) This only happens when portfolio managers are nervous and confused like they are right now as they attempt to trade around their positions, which creates the overreactions we have seen in so many stocks.

The S&P futures are trading up 10 to 11 points (around 8:15 AM ET) and MSFT is up over a point in the pre-market. After yesterday’s action, I could see the TV commentators were lost for something to say this morning. It was obvious they had their disaster-scenario scripts ready to go, but MSFT and the institutions took away the opportunity.

You can bet the institutions will try to get the S&P 500 above 15% and probably even 20% by year end

A close below the low of the high day, which is now 1362.65, will signal a change in direction and retrace some of the recent rally. The institutions will come back strong on the buy side on the pullback. That low is raised with each new high day; that’s the way you let the market dictate your action rather than trying to pick tops.

If you watch for the CVR indicators to signal a trend change, and use this in conjunction with a close below the low of the high day, you’ll have a high-probability trade opportunity. The S&P 500 is up 12.7% year-to-date; you can bet the institutions will try to get it above 15% and probably even 20% by year end. Why? That’s the game: Keep us invested and paying the fees. It’s nothing but good for us if they succeed. I don’t think Mr. G has a chance in hell of stopping them given his current waffling posture. Raising margin requirements would be a disaster. Mr. G knows he can’t derail the stock market now, or he would directly affect consumer spending. (It’s the if-you-think-you’re-wealthy-you-spend-more scenario.) He must keep stocks up.

Pattern Setups Vitesse Semiconductor [VTSS>VTSS], Veritas [VRTS>VRTS], Level 3 Communications [LVLT>LVLT], Nextlink [NXLK>NXLK], Ticketmaster [TMCS>TMCS], Micron Technology [MU>MU], National Semiconductor [NSM>NSM], CMGI [CMGI>CMGI], Wells Fargo [WFC>WFC] and Doubleclick [DCLK>DCLK].

Program Trading Numbers
Buy	Sell	Fair Value
7.20	4.70	5.90

If you want to learn more about Kevin Haggerty’s trading strategies, click on the link below to go to his series of tutorial articles.