Momentum Stocks Regain Some Momentum

It was an outstanding rally across the board yesterday, especially in some of the momentum stocks that had been thrown away the last five days. Volume was big at 922 million, breadth was excellent, and the up volume of 602 million shares was the most since March 5.

The S&P made its low of the day during the first 15 minutes of trading with bonds up 7/32. By 10:30 a.m. the S&P was up 1.8% and bonds were flat–the same trend we’ve seen the last couple of days. The market sat in a trading range until 3:30 p.m., and then exploded out of a cup-and-handle pattern to new highs, finishing up 2.3% on the day. There was significant program activity yesterday. The Russell 2000 also made a new short-term closing high, extending its rally from the March 24 low–great ammunition for this tape.

There’s no question that the 50-day moving average looms large in containing fear. Take a look at a daily chart of the S&P 500 for 1999–the 50-day average has contained every retracement so far this year. Any break below it will cause instant selling on the assumption the index will begin to retrace some portion of the 48% up move since October 98.

There were good entries and excellent moves in yesterday’s stocks. Key point: If a stock gaps on the opening (preventing entry) and then trades back down, you should enter if it trades back up through your entry price again. This was the case in two or three stocks from yesterday, including QWST.

Target Stocks Of The Day  Microsoft [MSFT>MSFT] broke above 82, but its now trading at 85 1/2, so look for an intraday pullback. Look for continuation entries in Merrill Lynch [MER>MER], Lucent [LU>LU], AMAT [AMAT>AMAT], MCI Worldcom [WCOM>WCOM] and Cisco [CSCO>CSCO]. Stay with Schwab [SCH>SCH] and America Online [AOL>AOL], which made great moves yesterday. They’re very extended, but if they form up again today they’re set up for continuation.

One theme from yesterday was that the institutions came back to bet on the consumer stocks. The following patterns in that group look good: Wal Mart [WMT>WMT], Best Buy [BBY>BBY], TJ Maxx [TJX>TJX], Home Depot [HD>HD], and Gap [GPS>GPS].

Program trading numbers  Buy: 10.53. Sell: 5.56. Fair Value: 8.04.

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.