The nervous perception in the tech sector had many institutions lightening up yesterday, reflected in selling in key tech stocks. This is not surprising, as they certainly don’t want to give back too much of the tech appreciation in the event this nervousness turns into fear, as it did when the techs collapsed in 1995.
Volume has increased significantly in the both the QQQs (Nasdaq 100) and the SPDRS, which traded over 10 million shares yesterday. Most of the volume was in blocks, which translates into institutional participation, probably a good deal of it hedging.
We’ve had seven straight up days in the S&P 500 without even one close below the low of the high day, so the trend certainly remains up. I would expect at least a three-day pullback based on the move from the April 1 low in the S&P of 1282.55.
The QQQs, which are a good proxy for the tech sector, are locked in a seven-day congestion between 112 1/2 and 107 11/16. The trade out of that range will be a good one, but until then it’s all noise in earnings season. Look at it in that context: Disregard what you hear, watch the action; it will be resolved out of the trading range one way or the other, and that’s how the institutions will make their decisions.
The semiconductor stocks, if you look at the SOX (semiconductor index), are animals. They’re nothing more than commodities–highly explosive when the DRAM market changes. Just look at monthly charts of Micron (MU) and the SOX back to 1994; it certainly looks like we’re a long way into this up move, hence all the nervousness and increased emphasis on earnings and perceptions of what can go wrong.
Target Stocks Of The DayÂ Â Look for entry in Mirage [MIR>MIR], which is in a nice pullback pattern, Boston Scientific [BSX>BSX], Merck [MRK>MRK] in the drugs (the drugs all did well yesterday), EMC [EMC>EMC], Medtronic [MED>MED], Guidant [GDT>GDT], and Avery Denison [AVY>AVY]
If the market turns down today, you can sell the SPDRS [SPY>SPY] on a move below yesterday’s low. Keep tight stops, as always.
You may wonder why I haven’t mentioned the papers, chemicals and other of what I call the “ugly cyclicals.” To me, these stocks fall into the category of “who cares?” They’re not great day trading stocks. But you can look for position trades on pullbacks after the stocks have made their moves and the institutions have committed themselves.
As I wrap things up here, the four Generals–Dell, Microsoft, Intel and Cisco–have all gone green, so maybe we’re off to the races again.
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.