Oversold Condition

After some early enthusiasm yesterday, with the S&P futures dictating the
NYSE opening once again, the SPDRs traded below their 50-day moving average, made one attempt to
rally above the early morning high of 123.56, failed, and sold off to a low of 121.81.

Someone had an agenda at 3:30 p.m. EST, though. The Mysterious Futures Buyer showed up, and
the S&P 500 cash rallied back to its 50-day moving average of 1227.86 and closed at 1227.70
(+2.20); the Dow finished down 21.73. Overall, the market is very oversold and should rally
today and Friday.

Yesterday marked the seventh straight day of negative breadth, with the S&P 500 finishing down
six out of the last seven days. The market is still mired in a trading range, with only 28 percent
of NYSE stocks above their 200-day moving averages. Momentum players are lost right now because
they can’t play the run-and-gun game and have people rush in behind them to buy strength. The
“greater fools” are resting, so maybe the value guys or the hibernating small-cap bulls will
take over.

The retail specialty stocks are trading as if all consumers are multi-millionaires who shop
24 hours a day, seven days a week. (I’m starting to get a nosebleed from the Wal-Marts and the
Best Buys.) But the greater fools are still getting sucked in, so we can still trade them

Do you think its just a coincidence that Goldman Sachs wants to sell all of us lucky retail
people their stock? I’ll give you two-to-one Abby Cohen tells us how bullish she is before the
quiet period.

Target Stocks Of The Day  The following stocks are forming cup-and-handle
patterns near their highs: Scientific Atlanta [SFA>SFA], Costco Companies [COST>COST], and
United Technologies [UTX>UTX]. Adelphia Communications [ADLAC>ADLAC] and LSI Logic [LSI>LSI]
still offer excellent setups if you can get continuation entries.

MCI Worldcom [WCOM>WCOM] made a seven-bar pullback and closed at the top of its range; look
for entry above yesterday’s high. In other techs, look for entry points in EMC [EMC>EMC] and
Applied Materials [AMAT>AMAT] from intraday five-minute bar chart setups. Sun Microsystems
[SUNW>SUNW] looks good and should move above yesterday’s high.

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.