Soft Opening, But Continuation Moves Possible
The market followed its script yesterday, gapping up on the open, then pulling back (taking out Tuesday’s low in the SPDRS) and trading down just enough to shake the tree. It was nothing but up after that.
Everyone played the game Wednesday. Institutions came back for some of the growth stocks, led by IBM, up nearly 15 and accounting for 68 points of the Dow rally. Cisco, EMC and Texas Instruments all rallied over four points as well.
Asset allocation programs also continued, and the spate of brokerage recommendations was no surprise, as analysts tried to jump in at depressed levels, hoping to catch the rally–something you should anticipate and take advantage of. There was also a good deal of technical buying because of the short-term oversold condition; the market had fallen four days in a row and was due for a little bump. (I must say it was nice to have the Mysterious Futures Buyer back in the last hour.)
There are some good continuation setups in the wake of yesterday’s action, but you must confirm your entries with the proper market dynamics. The tape is skittish, reacting more to negative news than positive news. There’s a lot media hype; you have to try to keep it at arms length, focus on the setups and keep your stops tight.
Target Stocks Of The Day  Some of the best trades yesterday came on the first breakouts of new intra-day highs, with some stocks exploding due to both institutional and program buying. Around 8:30 a.m., the S&P futures are down 3.5 points and some of the NASDAQ generals are down slightly; it could be a soft opening.
Watch for setups in Tel Mex [TMX>TMX], NTL Inc. [NTLI>NTLI], New Era of Networks [NEON>NEON], Franklin Resources [BEN>BEN], Tandy [TAN>TAN], Royal Dutch Petroleum [RD>RD], Tellabs [TLAB>TLAB], Ann Taylor Stores [ANN>ANN] and Cisco [CSCO>CSCO], which is getting ready to pop above its moving average.
The banks were interesting yesterday. All 17 of the names on the proprietary index I watch finished up, and 16 of 17 closed near the top of their ranges. The two I like are Chase Manhattan Bank [CMB>CMB] and Key Corp. [KEY>KEY]. Finally, keep an eye on Amgen [AMGN>AMGN], which has corrected and is consolidating just below its 50-day moving average (and just above its 200-day average). If the institutions come for it, it could be a good position play.
Program trading numbers  Buy: 5.10. Sell: 1.60. Fair value: 3.20
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.