Microsoft Over-reaction Panic May Be Over
You have to
love the addition of Microsoft [MSFT>MSFT] and Intel
[INTC>INTC] to the Dow. Microsoft and Intel accounted for 80 Dow points
yesterday and the Dow finished up 64. Nothing like being long DIA’s (Diamonds).
Both the QQQ’s and SPY’s (Spiders) reversed the early-range lows at about 11:00
a.m. following the initial downmove after the open. The QQQ’s reversed the 155
7/8 low and then trended to 161 3/4. The SPY’s did the same, reversing the 140
1/16 low and running to 142 1/4. That was the key trend for the day. Save both
those five-minute charts. You had the same trade three days in a row. The only
difference is on Monday it was long on the QQQ’s after the reversal, Tuesday it
was short, and yesterday it was long. It happens every day.
Some of the key momentum stocks had
early trap door reversals such as EMC [EMC>EMC], Home Depot [HD>HD], AOL
[AOL>AOL], and Cisco [CSCO>CSCO]. After the intraday highs about 1:00
p.m., both the QQQ’s and the SPY’s retraced about 38% of that early trend, which
gives us some impetus for early up today. That’s subject of course to what the
triple-witch programs do as today can be extremely volatile.
The energys were green all day,
Schlumberger [SLB>SLB] gapped on us, and the techs were okay most of the day,
with the semiconductors leading. Drugs, led by Merck [MRK>MRK], picked up the
pace for the second upday in succession and the cyclicals stuck their heads up,
led by the papers. As an aside, Clorox [CLX>CLX], a position trade that had
entry at the 44 level on Nov. 9, hit a 53 high Tuesday for a 20% gain so far in
26 days. That move was preceded by accumulation that you could clearly see. Louisiana Pacific [LPX>LPX] remains in a 10-bar consolidation between the 10-day and 50-day exponential
moving averages. This stock is being accumulated here at the lows. Keep this on
your radar for a breakout of the current range if you haven’t already taken a
position using an options strategy.
“It
certainly looks like the media panic and overreaction to Microsoft is
over…”
It certainly looks like the media panic
and overreaction to Microsoft is over, as the stock has risen from the panic low
of 84 3/8 to a high of 108 3/4 yesterday for a 29% move. For your records, keep
the daily charts on IBM and Microsoft to remind you of the herd mentality and
media overreaction that often creates excellent trade opportunities. Go back and
get the historical volume that you can get from Yahoo! on both IBM, when it hit
a low of 89 on 69.5 million shares, and Microsoft when it traded 120 million
shares, which is really 63 million real volume at the 84 3/8 low. It shows you
how quick the Generals move as a herd on reaction to news, and how it’s not
always correct. At the first sign of potential trouble, they become traders, not
buy-and-holders.
Program Trading NumbersBuySellFair
Value20.5018.5019.50
Pattern Setups
Of course the QQQ’s if they come for
them early. They closed in the top of the range. You can play continuation
breakout entry to new highs. Also, AOL [AOL>AOL], which has two patterns:
One, since it closed in the top of its range, get entry above the previous
close, probably second entry. And it also has a very clear cup-with-handle
pattern at 86 7/8 on the five-minute chart. AOL has dropped 13% in two days. If
the program boys play the game today, they’ll take AOL up. Also, Sun Micro
[SUNW>SUNW], Network Solutions [NSOL>NSOL] after it closed at the top of
its range on an outside day after a three-day pullback, Comverse [CMVT>CMVT],
CNET [CNET>CNET], Verisign [VRSN>VRSN] (a narrow range pattern after a
five-day pullback), Apple [AAPL>AAPL] (which has also pulled back seven
days), Red Hat [RHAT>RHAT], Harmonic [HLIT>HLIT], and Millennium
Pharmaceutical [MLNM>MLNM].Â
Watch for that early-morning trade,
whatever it gives you. What the futures do preopening really has no bearing on
it. You’re just waiting to react to the first early-morning trend.
Have a good trading
day.