Stocks Move On Perception First, Then Fundamentals
What Thursday’s Action Means
The pre-9:30 AM funny money Globex futures market
once again provided the fuel for the gap-up opening and quick move to the upper
boundary of the current trading range The net result was that the SPX was up 10
points to an intraday high of 998.89 by the 10:15 AM bar, and reversed to a
981.07 intraday low on the 3:55 PM bar, closing at 981.60.
I saved another classic inane quote by the inept
media to my collection yesterday, as a market commentator “to remain nameless”
told the audience that the intraday reversal was because the market didn’t like
the Congressional woulda-shoulda-coulda report pointing the 9/11 blame to
various agencies, who I guess they thought had lost their crystal balls. That is
so ridiculous, it makes my Chapter One.
NYSE volume was 1.4 billion, volume ratio 43, and
breadth just -49. The SPX closed at 981.60, -0.7%; the Dow 9113, -0.9%; Nasdaq,
1701, -1.0%; and the QQQ, 31.08, -1,6%.
The SMHs had an intraday high yesterday of 32.84,
challenging the current rally high of 32.95 seven days ago. They closed at
31.74, -2.4% on the day. The SPX had rallied 7.4% since hitting its 20-day EMA
at the 30.58 low last Wednesday. Intel, which was -3.1% yesterday, has now given
back all of the 8.1% gain from last week’s earnings game…and the beat goes on
for the unsuspecting buyers of announced earnings hype. However, there are some
happy hedge funds who sold stock to them — bought prior to the hype.
I wonder how the analysts feel now, as most of
them said Intel was overvalued and going lower when it was trading at 15.50.
Funny thing — it gained 65% to a 25.50 high last week and it’s “still
overvalued.” Stocks initially move on perception, and the obvious fundamentals
are well after the fact.
The primary common thread yesterday other than
gold up/bonds down was some more money thrown at some basic industry stocks like
Dow Chemical, from our focus list on Wednesday, which was +5.5%, and the leading
gainer yesterday in the top 100 market cap stocks in the S&P 500. Stocks like
Dow
(
DOW |
Quote |
Chart |
News |
PowerRating), Alcoa
(
AA |
Quote |
Chart |
News |
PowerRating), Deere
(
DE |
Quote |
Chart |
News |
PowerRating), and Dupont
(
DD |
Quote |
Chart |
News |
PowerRating) had all pulled
back and consolidated at their 200-day EMAs, and trust me, the Generals love to
buy those pullbacks if the perception is still positive in the sector or group.
The XLB, which is the basic industry SPDR, was +1.2% yesterday. The XLBs
bottomed on 10/10/02 along with the SPX, at 16.53 and are +32.7% to yesterday’s
21.93 high. The SPX is also +32% since its October 10 low of 769. From a travel
range standpoint starting at the October 10 bottom, the XLBs have gained +28% to
the 12/2/02 highs of 21.53, then declined 21% to the 3/12/03, 17.00 low, and now
+29% to yesterday’s intraday high. Those boring XLBs will most often trade
in-line with the SPX on up-moves and peak out before the SPX at tops, just as
they did on 1/3/2000, at 27.94. It’s a cheap way to play the S&P 500 in
up-markets.
For Active Traders
Traders had a good day from the short side yesterday. If you shorted either the
SPY or E-minis at the 994.68 zone, which is the upper boundary of this trading
range, and the 9:40 AM high, you ended up probably scratching the trade. Entry
was below the 9:40 AM bar of 992.91, which only declined to 991.15 before
reversing to the 998.89 intraday high, which stopped you out at breakeven or a
small loss.
The 1.0 volatility band yesterday was 979.94, so
you could have entered short again as price reversed that band to the downside.
The rally to 998.89 was on the 10:00 AM bar, as TICKs suddenly jumped to +1200
as the computer-driven orders lit up the floor, but the TRIN was above 1.0 and
increased to 1.10 on the 10: 15 AM bar when the SPX made a 1,2,3 lower top at
997.54. The SPX then went sideways in a 2-point Slim Jim between 996-994 from
11:45 AM until the 2:20 PM bar, when it broke out to the downside and below the
8, 20, and 60 period EMAs on the 5-minute chart. Price traded down to a 981.07
intraday low and 981.60 close.
If you have attended any of
my seminars and missed all three of them, then it’s review time.
Today’s Plan
The SPX is in the low end of the 994-976 range
after yesterday afternoon’s decline, so any early red today will probably set up
an intraday contra move to the upside and then we will find out how the game
will be played for the remainder of the session.
All of this daily news is probably disconcerting
to those who are long index-type mutual funds in their IRAs, so you should just
keep watching those rising 12-month moving averages on the major indices.
The SPX 12-month EMA is now 942.96; the Dow,
8738; QQQ, 28.54; and Nasdaq, 1526. Do the same thing for all the major sectors
and you will know when to be concerned or else think about adding to a position.
Have a good trading day.
Kevin Haggerty
Â
Â
Â