Pullback Right On Schedule

• November 2, 1999
• Kevin Haggerty

Pullback Right On Schedule Yesterday was an inside day with the narrowest range since September 10, which comes as no surprise. As we mentioned yesterday, after the month-end two wide-range up bars, there would be some consolidation or pullback before any more thrust. You never know how long the market will consolidate, but it’s easy to wait for continuation entry once the market chooses its direction.

Some of the key mark-up stocks, such as AXP and GE, had air under their legs yesterday. AXP, which had run to 161, dropped as low as 148 1/2 yesterday, closing at 149. It not only made up the gap, but closed under the breakout of its cup-and-handle pattern. This sets up a trade if AXP breaks out above 150 again.

You get the feeling after yesterday that you are looking for long-side entry as stocks pull back, not for short entry

GE, which rose to a high of 136 5/16 at month-end, dropped 5 15/16 to close on its lows at 129 3/8. Love it at month-end, and hate it the next day. Nothing’s changed at the company–you get the picture. GE also made up its gap, and a move above 129 1/2, which is Thursday’s low, could get it going again. If they want the averages up, AXP and GE will participate, so they are two stocks to keep on your radar.

Breadth was a push yesterday, and the up-volume down-volume ratio was slightly negative. The Semiconductor Index (SOX) and the Morgan Stanley High-Tech Index (MSH) were green all day, but by and large, the institutions took the day off after a strenuous last three days of October, helping themselves and our IRAs.

The EGRPs and NITEs of the world picked up some interest yesterday, as they didn’t move as much as the big brokers during the rally. You get the feeling after yesterday that you are looking for long-side entry as stocks pull back, and not for short entry.

The Spiders (SPY) and Diamonds (DIA) have some gaps to fill, but gaps don’t always get filled short-term. New swing points have been established, with closes below the low of the high day in both SPY and DIA, so continuation entries to the upside are crystal-clear. They both closed at the bottom of their ranges, giving good possible continuation entry on the short side if we get more pullback. Don’t get any more cerebral than that; take what price gives you.

Pattern Setups Merck [MRK>MRK], Yahoo [YHOO>YHOO], Qualcomm [QCOM>QCOM], trading above Friday’s high, Tellabs [TLAB>TLAB], Phone.com [PHCM>PHCM], Pixar [PIXR>PIXR], Verity [VRTY>VRTY], which is sitting in a consolidation, and Idec Pharmaceuticals [IDPH>IDPH], which is doing the same. If they want to play the energy game today, Schlumberger [SLB>SLB], which is a key institutional stock, is setting up pretty good.

Program Trading Numbers
Buy	Sell	Fair Value
8.30	5.70	6.80

Finally, E-Trade Group [EGRP>EGRP], is a relatively small-range stocks, but it’s set up fairly well. If they come for those stocks again, EGRP is sitting right below its 200-day exponential moving average; it might be a good play.

If you want to learn more about Kevin Haggerty’s trading strategies, click on the link below to go to his series of tutorial articles.