Reality Check

April 15, 2002
Dave Floyd

While today’s column will not raise any eyebrows
from readers who look deeply into the news and have a “skeptical”
approach to anything that Wall Street proclaims, it is something I have been
wanting to get off my chest for some time. After doing my usual weekend reading
and research as well as reflecting on the week that was, it became apparent that
the time was ripe for this column. At first blush, the content may not appear to
have any direct impact on HVT, and in some
vain that is true. It could easily be argued that the conclusions drawn from
this piece better serve your portfolio rather than you trading account.
Nonetheless, I fully believe it impacts players on all time frames.

So what is this narrative I plan to get into? The current state of Wall
Street. The current state can be viewed from two perspectives:

It is high time that someone like New York Attorney General Eliot Spitzer
sank some teeth into the shenanigans that have been going on in the
analyst/investment banking divisions. The SEC has been ineffective in
dealing with Wall Street. While I have enjoyed the recent fallout and found
it rather amusing that this crap went on in the first place, the fact that
some of these jokers may actually do time is comforting. At the same time ,however,
these developments alarm me. This segues into perspective #2.

What are the implications for our markets going forward as a result of all
this?

It is no surprise that the market has had a tough time in the last couple of
years. Investors, many of whom were new to Wall Street, have had to come to
grips with significant losses in their portfolio. Up until a few months ago,
most probably just chalked it up to lack of experience or whatever. The recent
revelations (recent to many, not to those who saw this coming) present some very
serious outcomes. What if Jim and Jane Shareholder walk away from the markets in
disgust that they were duped (although personal responsibility plays a part as
well)?

What if the Eliot Spitzer is successful in his campaign? That leaves 49 more
attorneys general waiting in the wings to claim their limelight. That cannot be
good news for brokerage stocks. The sole exception being Prudential
Securities
(
PRU |
Quote |
Chart |
News |
PowerRating) which, to my knowledge, has no investment
banking division. The comparison of their chart vs. Merrill
Lynch
(
MER |
Quote |
Chart |
News |
PowerRating) for the last week tells the tale.

Volatility in the near term may not be far off if there is some sort of
capitulation as a result of all the above mentioned events. But what would that
mean for volatility if there is a “wash out” going forward? One would
presume volatility could be very muted. People will be the sucker for only so
long. Why do you think hard assets like gold have had such an impressive run so
far this year?

As traders, the fundamental points described above have very little impact on
us day-to-day. Intraday traders cannot possibly trade based on fundamentals.
Most of us trade technically, and with justification. So why concern ourselves?
Simple. In my opinion, the dynamics of the market have changed immensely since
2000, and could change even more. Adaptation will be key.

From an investing standpoint, I truly believe that some real gems can be
found out there by using a combination of technical and fundamental
analysis. It appears as though fundamentals may actually make a comeback into
investor’s playbooks. Contrary to what Merrill Lynch
said last week in response to a suggestion that their research department be
spun off as a separate entity to avoid future conflicts of interest, they
adamantly were against that on the grounds that the research itself was not a
money maker. Gee, well, maybe if your research was any good, people would pay
for it. I subscribe to half a dozen outside research publications and pay good
money for them, and they are worth every penny. I suspect over the next few
years, good quality research will be in high demand as traders/investors seek
out guidance in a market that may look very different than the one we have right
now.

My comments above in no way should reflect an approach to daytrading. I was
merely illustrating a “big picture” development that I see. However,
it does go back to the whole idea of:

Having a game plan every single day and executing it without hesitation.

Knowing how to “fine tune” the game plan as conditions warrant.

I told you in my column
on Thursday how I got sidetracked. Let me tell you something. I beat myself
up all weekend over that. I HATE TO LOSE. You can bet that my performance this
week will be flawless. We all get sidetracked from time to time, but as Larry
Connors stated in his
column yesterday, unless you have a “Single Mind” you will, as
Bill Fleckenstein states, “merely be chasing the Jello around the
plate.”

So how is this week shaping up? I suspect we will once again remain somewhat
subdued unless there are some real bombshells on the earnings front, the S&P
cash breaks through the 1075 level, the Nasdaq cash remains below 1369, or the
tensions in the Middle East flair up. I plan to stick to my recent game plan of
trading very assertively in the first 45 minutes and then cherry picking from
there on out unless there is some really good price action. For
newer readers I suggest you read through my
trading lessons to get an idea of how I define quality setups.Â

As always, keep an eye on the
(
$SOX.X |
Quote |
Chart |
News |
PowerRating). This
index continually leads the market and offers nice hints at turning points. It
is oversold short-term, but has some serious hurdles ahead at 563
and 576.
I am finding stocks like IBM
(
IBM |
Quote |
Chart |
News |
PowerRating),
Tyco
(
TYC |
Quote |
Chart |
News |
PowerRating)
and Teradyne
(
TER |
Quote |
Chart |
News |
PowerRating) offering good liquidity and range intraday.Â The brokerage
stocks, Merrill in particular, have been active, but I have found MER to be a
difficult intraday trader. Keep an eye out on stocks with overnight news
developments. They have been the ones offering the best trades right on the
opening, provided you fade it.

Key Technical
Numbers (futures):

S&Ps	Nasdaq
1136	1401
1129	1382-86
1121	1363
1116 (key level)	1334
1106	1315-17
1099	1300
1083	1272

As always, feel free to send me your comments and
questions. It appears as thought the problems I was having accessing TradersWire
was just the tip of the iceberg. My second computer is officially “dead.”
I hope to have it up and running later today or tomorrow. As a result I will not
be in TradersWire or able to return e-mails.Â

Dave

Reality Check

BUY THE FEAR, SELL THE GREED

Quick Links

Company Info

Contact

Company Resources