Reality Sets In

• August 29, 2001
• Dave Floyd

Reality is
setting in. After numerous rate cuts, a tax cut and generous amounts
of “cheerleading” from Wall Street and the press, the hard facts are
beginning to resonate. Yesterday’s action was spurred by the drop in consumer
confidence, the one last pillar of strength that most are counting on to save
the economy from slipping into recession. Look at this comment from the CEO of
Toshiba, which just announced 19,000 job cuts, “This is not just a
temporary IT slump. We are entering into a phase of structural depression.”
Again, I am not crying “Chicken Little,” but these are the facts, how
the Street deals with them is anyone’s guess.

For now, I will remain short select
issues in both the retail, housing and home improvement sector (these are longer-term
trades, not scalps). These three areas have remained unscathed during the
market downturn, and I still feel they are ripe for a beating. Today’s GDP
report will certainly give us a better indication as to where the market goes
from here. Trading desks are lightly staffed, so price action can be
exaggerated. Once Tuesday (Sept. 4) rolls around though, I expect there will be
some very decisive intraday moves.

Yesterday’ session, despite the
selloff, was somewhat uneventful from a scalping standpoint. There were a few
excellent setups after the 10:00 a.m. ET release of consumer confidence.
The initial burst to the downside offered great shorts in stocks like Micron
Technology
(
MU |
Quote |
Chart |
News |
PowerRating), Goldman Sachs
(
GS |
Quote |
Chart |
News |
PowerRating) and Best Buy
(
BBY |
Quote |
Chart |
News |
PowerRating).
The reversal rallies after the initial move down also offered great entries on
the short side.

Key
Technical Numbers: (futures)

The revised GDP number came in line
with estimates, bringing the futures off the early lows. This may not shake the
market up nearly as much as a surprise number. Nonetheless, I am sure there will
be few setups in the first hour. Trade selectively. Feel free to send me your
questions and comments.

Dave

P.S. Thank to
everyone at TradingMarkets HQ, it was great meeting with of you yesterday, keep
up the good work. Congrats to Duke for winning $10 for quick identification.
Don’t spend it all at once Duke!