Pick Your Spots

• September 5, 2001
• Dave Floyd

Slightly better trading was evident yesterday
as we rolled into the fall trading season. While the juiciest trades came off
the release of the 7:00 a.m. PST NAPM report, the afternoon offered some
excellent setups after the technical breakdown. While I am no economist (except
for my degree), the fact that the NAPM was much stronger than expected, yet the
market gave up all the gains, is puzzling. But as I tell my traders (the ones
who focus on scalping), don’t try to figure out why things are happening, just
pick your spots and act accordingly. Needless to say, at the end of yesterday’s
session, our office made out quite well. Those that had a tougher time were the
ones who were “catching falling safes” and those who were testing out
their psychic powers of calling intraday tops.

The charts below illustrate the tremendous upward thrust the market had
yesterday after the release of the NAPM. The nimble trader was able to capture
wonderful upside moves. As always with these sharp moves, never get greedy.
Exits should always be prompted by the futures losing momentum, the second
circle on S&P futures chart. This is an area to consider letting go of half
of your position, since many times the momentum resumes, as it did in this
example.

The remaining high-probability setups came in the afternoon as the market
broke through the Key Technical Numbers which I posted in yesterday’s
column. As you can see, 1150 was an excellent spot to get short from when
the S&P’s broke below that level around 3 p.m. EST. Several stocks
participated in the selloff allowed for 1/2 and 3/4 point “scalps.”

Perhaps yesterday’s selloff was a result of Providian Financial
(
PVN |
Quote |
Chart |
News |
PowerRating)
pre-announcing and promptly dropping almost $9. The “Cockroach Theory”
comes to mind with this news:  Where there is one, there are many more. As
a result, firms like Capital One Financial
(
COF |
Quote |
Chart |
News |
PowerRating) and MBNA
(
KRB |
Quote |
Chart |
News |
PowerRating),
two other large credit card issuers, as well as bank and brokerage stocks, are
sure to confess in the days and weeks to come. Further evidence of a consumer in
retreat. Perhaps that is why UBS/Paine Webber analysts upgraded the
broker stocks like [MWD|MWD], [GS|GS] and
(
MER |
Quote |
Chart |
News |
PowerRating)???

As of this writing, we are now within striking distance of the April lows,
1110 and 1395. Given yesterday’s sloppy performance, I do not believe the market
will have much problem getting there. However, the indices are quite extended on
the downside and due for a bounce. (Notice I did not say a bottom, like so many
pundits are saying these days.) Any intraday consolidation in these areas will
most certainly offer some ideal entry points to the long or short side. As I
have said many times before, there are times to break your rules, and this setup
may very well warrant it. What I mean is this, if the market is in a downtrend,
as indicated by a one- and five-minute charts, the rule of thumb is to sell the
countertrend rallies. However, with a key technical number like these April
lows, any consolidation followed by a thrust to the upside would be a perfectly
reasonable long trade WITH very strict and tight stop-loss rules.

Key Technical Numbers:
(futures)

As I indicated yesterday, fall trading is back (not full strength yet), so
take advantage. This is traditionally the time where traders make the majority
of their yearly income. Stick to your plan, don’t chase and always use sensible
stop losses. As always, feel free to send me your comments and questions.

Have a great trading day.

Dave