Short-Term Overbought, But Still Positive

Yesterday a good day was had by all, I hope. The bond market accelerated to the upside around 11:00 a.m. ET, and so did stocks. Blue chips and techs both advanced, with advancers outpacing decliners, strong volume, and the biggest number of institutional block trades this week.

The market is short-term overbought, with the averages pushing up against the upper channel of the fifth wave from the September-October 98 lows. The institutions continue to put money to work, and from 11:00 a.m. until the close buyers and programs kicked in at the same time, in addition to a trending move above the open.

Most good trading months consist of five or six good trend opportunities, and yesterday was one of them. There’s no question the institutions put their money to work, which means a strong reinvestment period plus new money–nothing but positive implications for the market. But again, we are short-term overbought, and we do have these quick down drafts–use tight stops.

Target Stocks Of The Day  Wal Mart [WMT>WMT] hit par yesterday, closing at 102. The move after making par can be strong, as we’ve seen in Schwab (SCH) and several of the other stocks we’ve talked about. Abercrombie & Fitch [ANF>ANF] is right on the heels of Wal Mart, closing at 95 5/16 after trading up to 99 1/4. Look for intraday consolidation patterns in both these stocks, and use tight stops if you get entry.

Colgate [CL>CL] and Microsoft [MSFT>MSFT] are both in acceleration patterns and could move if the momentum players decide to come for them again today. Biogen [BGEN>BGEN] is in uncharted waters after yesterday’s close and Amgen [AMGN>AMGN] is right at its highs. They’re both positioned just right to be gunned up by “they,” whoever they are. After a five-day pullback, Genentech [GNE>GNE] could challenge its high if it moves above yesterday’s high

Another par selection, Merill Lynch [MER>MER], looked like it was going to do it yesterday, rallying to 98 11/16 before retracing. A lot of people are rooting for Merrill to be over par, and my guess is that it will get there no problem, whether it corrects first or not. Stay on it, and look for intraday patterns. Have a good trading day, and keep the stops tight.

Editor’s note: If you want to learn more about Kevin Haggerty’s trading strategies, click on the link below to go to his new series of tutorial articles.