Mini Meltdown of S&Ps

The S&P 500 ended

up 19.53%, so I hope you give me the benefit of the round-up to 20%
which I said the Generals would try to mark it up to. Many of those stocks that
were pushed up by the Generals to attain that 20% had big air pockets yesterday,
such as GE [GE>GE], Wal-Mart [WMT>WMT], Home Depot [HD>HD], American
Express [AXP>AXP], and Morgan Stanley [MWD>MWD]. Not a surprise that you
get air pockets after the only buyers were those that were making their
positions good. When they stop, you get the air pockets and they have to
give up price to sell some of that marked-up stock.

In my 12/29 commentary, I mentioned that
either the rest of the market would have to join the big-caps or the big-caps
would capitulate and join the 70% of stocks below their 200-day moving averages.
We also said that bonds and stocks won’t continue the divergence of higher
yields and higher prices of the major averages. Even though the perception has
been and still is that the Fed will raise rates and the only question was how
much, the reality of yesterday’s long bond selloff to a 6.6% yield created fear.
Combine that with no Greater Fools left to buy the marked-up big-caps and we got
a mini meltdown.

force the trade and keep your finger on the ejection

The S&P futures took out Friday’s
high of 1488.70 and traded up to 1496.50 which also took out the R2 resistance
level of 1494.33. See the Futures Traders section on the site for these numbers
every day. They are very helpful in framing your market dynamics. Perverse as
the market is, the S&Ps reversed Friday’s high to the downside and took out
Friday’s low of 1476, trading down to 1452 in a mini meltdown which is
just a preview of what can happen. You don’t think the locals in the S&P pit
will stand there and buy those S&Ps when the institutions try to hedge some
exposure. Not a chance, and when coupled with sell programs, you get

The S&P finished yesterday -14, with
the Dow -140 but the NDX (Nasdaq 100) had a big travel range day going +54 by
9:45 a.m. ET, thanks to the retail buy orders, to -57 by 11:00 a.m. ET, and then
staging a strong recovery to finish the session +83. The Internets also put in a
good recovery as the Internet proxy, the HHHs, closed at 189 1/2, up 20.44
points and in the top of its range.

There were some good intraday patterns
on the 5-minute chart prior to the recovery rally in techs and Internets such as
AOL [AOL>AOL] and the HHHs. As I speak, the S&Ps are off 20 points, so if
this holds through the opening, the S&P 500 will open and challenge the
first reference point of 20-day EMA on your daily chart, which is 1432.
Remember, moving averages don’t stop price. They are just a level that you look
at closely to see if the buyers return and you get a short-term reversal
pattern. If you get it on the daily chart, and it also sets up on your intraday
chart, you can take the trade.

Trading Numbers





Pattern Setups
Most of what you do today
because of pre-opening mini meltdown conditions will be to take advantage of the
big gap down openings and opening reversals if the stock shows a positive
divergence. Yesterday, you had the reverse with crazy openings in the QQQs and
EMC [EMC>EMC], to point out two examples, but there were many more. That is
show time for the specialists to make money and they do, but only because the
S&P futures gives them the opportunity to gap them. FYI, four of the five
VIX indicators turned positive last night. See the Market Bias Indicators on our

Today, focus on the oversold high-RS
value stocks on your intraday charts. With the futures down, I don’t expect you
to get any continuation entries on these. These will probably be as a result of
opening reversals or trades to the first intraday high. They are Brocade
[BRCD>BRCD] (take it above the 12/31 high), AOL [AOL>AOL], Internet
Capital Group [ICGE>ICGE], Network Solutions [NSOL>NSOL], Red Hat
[RHAT>RHAT], and Nortel [NT>NT] (and take that also above the 12/31

Have a good trading day. Be careful.
Don’t force the trade and keep your finger on the ejection