Pure Reaction
Yesterday’s market continued the streak of good
trading days, although the afternoon session left a little to be desired. The
release of the ISM report at 10:00 a.m. EST
offered a great entry to the long side in multiple stocks, like
(
IBM |
Quote |
Chart |
News |
PowerRating),
(
WMT |
Quote |
Chart |
News |
PowerRating),
(
TXN |
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Chart |
News |
PowerRating) etc. The impetus was simply the explosive 8 point move in the S&Ps.
So how do you play that scenario? For
the most part, you ignore most of the basics which I have discussed in previous
columns, i.e., don’t buy downtrends, don’t sell short up-trends, etc. Whenever
you have a release of fundamental data which is so widely anticipated, you can
pretty much guarantee there will be a good move, especially if the number comes
in much higher or lower than expected. At this point it is irrelevant whether or
not any of those previous conditions are met. The market is going up, period. I
need to be long, or the market is selling off, I need to be short. These trades
require little in the way of brains but perhaps a bit more in terms of nerves.
The ISM report came in at 58, far
above expectations. That was all I needed to see. I just bought. I happened to
have been trading Wal Mart
(
WMT |
Quote |
Chart |
News |
PowerRating) up to
that point so that is what I stuck with, although any of the large liquid stocks
will usually work. There is no thinking in these trades, it is pure
reaction. Period. If you were decisive and exited the trade when the S&P futures
began to lose momentum, you probably grabbed anywhere from 30-60 cents in a
matter of 4 minutes. Not bad work if you can find it.
Looking at an intermediate term trade
I pointed out yesterday in TradersWire
was a nice short setup in AutoZone
(
AZO |
Quote |
Chart |
News |
PowerRating)
based on the daily chart. The entry point was triggered and the trade still
appears to have some legs to it. I will keep you updated.
Regular readers know I have been
bearish on J P Morgan
(
JPM |
Quote |
Chart |
News |
PowerRating) for some
time. The recent run-up in the stock has not deterred that view, in fact in
light of the recent run up and a court ruling today, another entry point may be
upon us if the overall market weakens in the days to come. Today a ruling came
down against J P Morgan relating to the bank’s claims that insurers pay them a
total of $965 million of surety bonds related to Enron oil and gas contracts. If
in fact this claim stands after the Dec. 2 court date, it may spell trouble. In
the interim however, it may have an immediate effect. So from a technical and
fundamental standpoint, the horizon does not look to good for good ole J P
Morgan.
I wanted to show you an example of
KTNs on a 5-minute S&P futures chart. I have
received several emails over the last few weeks regarding the best way to use
them. I believe the chart below will begin to offer some insight. The most
important aspect is that the KTN’s are not absolute, they are merely a
complement to an already existing trading setup. Do not make the mistake of
getting short or going long just because the S&Ps come up to a KTN. I will have
a much more comprehensive lesson on these in early April with the launch of my
HVT Trading Course.
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| 1173 | 1567 |
| 1164 | 1544 |
| 1160-62 | 1523-25 |
| 1156 | 1505-07 |
| 1148-50 (confluence) | 1492 |
| 1141 (opening only) | 1486 (key support) |
| 1133-35 | 1462-64 (confluence) |
| 1121 (key support) | 1437-42 |
| 1117 | 1425 (key support) |
| 1103-05 | 1419 |
| 1409 |
As always, feel free to send me your
comments and questions. See you in
TradersWire.