Still On The Fence

• January 3, 2002
• Dave Floyd

Not a bad
start for the year, a good dose of volatility and a nice run to the
upside to rescue the market from a dire situation early on. Given that the
economy is only a month or so away from the end of the recession, I guess it
would make sense! Enough of the sarcasm. The morning session offered some great
setups early on, in the energy and especially semiconductor stocks. The
afternoon, while impressive in terms of the box score, I thought was pretty
challenging. I ended up giving back some of my gains from the morning, but still
ended up with a good day.

For traders who were trading off of
5-minute bars and yesterday’s KTNs, there was a nice setup in the late morning
and late afternoon (see chart below). An interesting note, I did not take the
trade noted by Point A, for one simple reason, even
though the S&Ps broke that very narrow range, I knew that 1151-52 was only a
couple of points away, not nearly enough upside to justify buying a break-out.
The better trade, at least it worked out that way, was to see how the S&P’s
“handled” that number before committing to the trade. Granted that
trade did not really offer tremendous upside, but from a risk/reward standpoint
it was a better trade than the one offered at Point A.

For those of you read my
column yesterday, the AutoZone
(
AZO |
Quote |
Chart |
News |
PowerRating) trade that I have been
waiting for finally set up. The stock finally broke through 71.80 (see below)
and appears to be poised to fill the gap. Be careful however. This stock has
been a short seller’s nightmare over the last year, and it could just as easily
resume its uptrend. Use a protective stop on this trade.

I am also keeping a close eye on Best
Buy
(
BBY |
Quote |
Chart |
News |
PowerRating) and Medicis Pharma
(
MRX |
Quote |
Chart |
News |
PowerRating), two longs which I mentioned

yesterday. Both are in danger of breaking through their 20-day moving averages.
For me, that will be my protective stop loss.

Key
Technical Numbers

The jobless claims number came in a
bit weaker than expected, and Dow Chemical
(
DOW |
Quote |
Chart |
News |
PowerRating) reported that they
will miss fourth quarter earnings estimates. Dow should offer some nice
volatility plays on the opening, I will be looking to fade any large gaps to the
downside and play the subsequent pull-backs and rallies. This market is still
“on the fence” with conflicting data and a severe case of being overly
optimistic about the economy in the near future. Traders need to be poised for
some great trading opportunities as the scenario unfolds.

As always, feel free to send me your
comments and questions.  I will be in TradersWire
sharing my observations.

Dave