Sector Rotation Is Intense
A down day
again. I pulled up the hourly charts of the S&P’s, Nasdaq
and Dow after the close and noticed that the Nasdaq has closed for the second
consecutive day below its 20-period moving average, while the S&Ps and Dow
are resting right on their 20-period moving average. What are the implications?Â
Given the fickle nature of the market lately, I could not venture an accurate
guess, however, after a long run to the upside with no clear leadership, the
market is vulnerable. Continue to trade them as you see them however, don’t let
my observation cloud your judgment intraday.
Yesterday’s afternoon session was
quite active as decisive sellers seemed to dominate action. KTNs dominated the
afternoon action and allowed for excellent entries on the short side. Refer to yesterday’s
KTN’s
One of the characteristics that the
current market is exhibiting is intense sector rotation not only on a day-to-day
basis, but even intraday. In recent sessions I would be trading a stock, say, in
the retail sector in the morning, then trading a chip stock in the afternoon.
This can be challenging for traders of all levels. Additionally, trading the
market of late has become even more of an art form than typical. A quick survey
of the traders in my office paints a clear picture: The traders with 1.5 years’
experience or better are faring much better than the newer traders. While of
course that would come as no surprise to the casual observer, the striking
difference is that the experienced traders are relying more on their
“feel” and “gut instinct,” as opposed to a rigid methodology
which all newer traders must adhere to.Â
Some key levels in addition to today’s
KTNs are as follows:
Nasdaq:Â Â Â 1489 &
1456
S&P’s:Â Â Â Â Â
1106 & 1096
Dow:Â Â Â Â Â Â Â Â
9460 & 9380
Looking at some longer term plays
(days to weeks) I offer you the following, based purely on their technical
situation. You may find it useful to look at these companies from a fundamental
standpoint too:
Potential Longs:
Dun & Bradstreet
(
DNB |
Quote |
Chart |
News |
PowerRating),
while this stock may not rekindle the gut-wrenching emotions found when you were
trading Broadcom a year or so ago, this stock is steadily approaching a 52-week
high on solid accumulation.
Lowe’s Corporation
(
LOW |
Quote |
Chart |
News |
PowerRating), while I am not crazy about the valuation of this stock, admittedly
the technical picture is attractive, good accumulation and making a fourth
attempt and breaking above $40.
Potential Shorts:
Golden West Financial
(GDW), a failure at the 20-day moving average accompanied by distribution.
Health Management Association
(
HMA |
Quote |
Chart |
News |
PowerRating), a big breakdown in the future? Big distribution and within
striking distance of the 200-day moving average.
SBC Communications
(
SBC |
Quote |
Chart |
News |
PowerRating), similar situation, testing June low with decent distribution.
* Always use protective stops
I will probably only be providing KTNs
for Monday’s column. While the stock market is open, the bond market is closed
so I don’t anticipate any real meaningful price action. As always, feel free to
send me your comments and questions. Have a great weekend.