Numerical Limbo

April 4, 2002
Kevin Haggerty

The next thing I said was
that hopefully and probably there would be some new monies put to work during
the first few days of April. Well, there was, but it was only one day, as the
techs had an excellent up day following the up-day tech run last Thursday.

The third thing I said
was that the major indices looked like they wanted to work lower after the
above-mentioned events were complete. Needless to say that has also happened,
but not in the way that I expected. The fear factor was magnified in the techs
for the past two days as the Generals put their hands in their pockets, media
hype got frenzied with the microanalysis of news, and analysts were changing
from positive to negative every other day, and also many firms on opposite sides
of the positive or negative.

Unless you are really
into it, you don’t have a clue whether beating some number is good or bad. The
solution is don’t take individual stocks home during earnings season without a
derivatives strategy, or for that matter, any time. Stick to index and/or sector
proxies if you have a conviction.

The markets are in
numerical limbo right now. The upside breakout levels are obvious. I said the
September “V” bottom low wouldn’t hold up without a retest, but so far
the NDX
(
$NDX.X |
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PowerRating) is the only one that has done so, as it has made a .618
retracement to the September low when the
(
QQQ |
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PowerRating)s hit a 33.09 low. They had a
nice bounce of +18.4% from the .618 level to the 200-day EMA, then failed at
39.19. Yesterday’s low was the second extended volatility down move in two days,
and the QQQs closed at 35.03, which is right at the .50 retracement to the
September low. I hope you caught the volatility band move yesterday afternoon.
You can Fib out the 33.09 to 39.19 move if you want and be aware of any intraday
setups at the levels, and you should do this, but that’s not where the big game
is being played.

The DJX didn’t even make
a .38 retracement to the September low and is still above its 200-day EMA, while
the SPX
(
$SPX.X |
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PowerRating) did make it to the .38 zone and several points just
below it. It closed yesterday at 1125.40, well above the 1089 .38 retracement,
but is now below all of its moving averages. The big game question is will the
SPX and DJX retrace more to the September low before it makes a “C-D”
leg to new rally highs. The “A-B” leg was from 1074-1174 and
“C-D” will be measure from the current bottom if it remains reasonably
higher than 1074. Longer-term conservative types are better off waiting for
continuation breakouts for fund investing. That, of course, changes if we go to
new lows.Â

Regarding the Mideast,
any downside war reaction will most likely result in a strong reflex
rebound.Â

Stocks
Today

As to today, we’ve had a
sell day, sell short day, and today could be the buy day, hopefully after some
early down. Look to the extreme two-day oversold stocks and certainly focus on
some of the major semis that I harp on and also the index proxies.

On the short side, I
would strictly remain with the proxies during this earnings season. The media
circus will continue on the earnings “Yes, No, Maybe,” scenario, so
keep your powder dry unless you see the trade. Don’t force it. The volume is
“fear light” the past two days, as the Generals have had their hands
in their pockets, and the futures attacks and married puts are in charge.

Have a good trading day.