Steady As We Go

  • October 2, 2001
  • Greg Che

 

Well
the Fed moved as anticipated and the markets took a liking to it. The
Fed warns of economic weakness looking forward. Will the ninth time be
a charm? It could be, as the broader markets ended in the green column
after a roller coaster ride when the Fed announced its decision. We
must stay on target, remain disciplined and wait for further
confirmation to the upside. Such as breadth, more follow through days
or even some other major economic stimulus both here and abroad. Of
course the threat of war is becoming more and more imminent so we must
be continue to be on our toes as the market environment could turn on
a dime.

Stock wise, over the last
couple of days, we have seen some nice momentum plays which presented
themselves. As you probably already realized, I try to look for
momentum plays which meet the technical aspects of momentum trading
and the fundamental aspects which could lead to intermediate term
plays.

One such stock is
Pharmaceutical Research (PRX),
which is still forming an ascending symmetrical triangle. (I think I
may have mentioned this stock before…forgive me,
I
am brain dead right now and probably until after Tradingmarkets2001!)
Earnings have been growing at a triple digit pace (200%, 167%, 171%
and 700%). Sales have risen over the past 4 quarters (6%, 21%, 42% and
29%). It is a relatively undiscovered stock with only 8% of the shares
being held by institutions (funds and banks combined). Note the
Relative Strength line broke out of a symmetrical triangle
already…it could be an indication that PRX will make the same break.

Another drug company,
Biovail (BVF)
after retracing 50% off its last move up,
looks poised to test its high made in the beginning of August. The
ethical drug maker has been showing some nice growth in both earnings
and sales. It also has a decent debt level of 31%.

Looking at the ETFs the
Software HOLDRS (SWH)
gained 4.2% in the session as it took out the top of a descending
symmetrical triangle.

The iShares Internet Trust (IYV)
tacked on 3.3%.

And the WEBS-Australia Index
(EWA)
moved up 3.3% breaking out of a low level trading range on lower
volume compared to the prior day.

On the downside was the
Morgan Stanley Internet Street Index Fund (MII)
which slid 3.9%.

The Semiconductor HOLDRs (SMH)
lost 2.6% closing near the bottom of a low–level
descending triangle.

And the Morgan Stanley High
Tech 35 Index Fund (MTK)
closed lower 1.0%.

Remember that all securities
are risky. In any trade, you should always reduce your risk by
adjusting position size and placing open protective stops where
you will sell your long or cover your short in case the market turns
against you. For an introduction to combining price stops with
position sizing, see Loren’s lesson, Risky
Business.

Greg

P.S. I look
forward to meeting you all at Tradingmarkets2001 this Friday!