Semis To The Rescue

• January 4, 2002
• Dave Floyd

The old sled
dogs were back in the driver’s seat yesterday ratcheting up an
impressive 8.2% run in the
(
$SOX.X |
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PowerRating) and propelling the major indices
higher. While the box scores look impressive, I thought the afternoon rally felt
quite labored, almost as if buyers were being forced in for fear of being left
behind in the total return column.  In fact I found virtually no good
set-ups off the one-minute bars.  All my gains came from the morning
session. 

If you take a look at the chart of the
one minute S&P futures below you will notice how “noisy” it is.
Anytime you attempted an entry after a pull-back, the market immediately went
against you, or never followed-through. Traders need to be able to recognize
this and stay on the sidelines. Very few people in my office traded during this
time yesterday, at least on a “scalp” basis. Those few who did, wound
up getting chopped up and spending money on commissions. Be patient, a bullish
day does not mean you always need to be trading. In fact, my experience has been
that up days always offer fewer QUALITY intraday
setups than down days. This is probably a function of the greed/fear dynamics.

So what does it mean? If the past is
any indication, the market will continue on the upward path with the semis
leading the way. Take a look at the daily charts of the big semi stocks like Intel

(
INTC |
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PowerRating), Applied Materials
(
AMAT |
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PowerRating) and the Semiconductor
Sector Index
(
$SOX.X |
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PowerRating), they all had nice big moves off consolidation
with heavy volume, look for follow-through in this sector tomorrow. You may even
want to consider some of these stocks for longer term plays.

I know this will sound like overkill
and some of you will be saying, “C’mon Dave, just go with the flow!”
and you are right, I am going to go with the flow regarding position trades, I
will nibble on the long side in the semis, but my opinion is that these things
are way ahead of themselves. In accordance with that thought I will be using
tight stops in the event a bombshell drops and these things get slammed. 
One only needs to look back at the debacle in Internet stocks for a sobering
reminder of what happens when reality catches up.

An update on AutoZone
(
AZO |
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PowerRating),
if you have been watching it you know it got crushed yesterday, in fact it not
only filled the gap from Dec. 5, but continued lower. For now the short
positions look good.  After the close there was a report that the company
appointed a new Chief Financial Officer (CFO). I do not know all the details,
but keep an eye out since CFO replacements can sometimes be associated with
accounting irregularities.

Key
Technical Numbers

As always, feel free to send me your
comments and questions.  See you in TradersWire.

Dave