Tail Tells The Tale

• September 19, 2001
• Dave Floyd

Yesterday’s action, while still quiet
relative to the events going on, offered some excellent intraday trades. Volume
was again heavy, and apparent problems with SIAC (Securities Industry
Automation Corporation), made getting trades done difficult for a few clearing
firms, mine included. The big setup of the day came off 1036-37 on the December
S&P futures (the contract switched yesterday from the September to December,
the symbol on my quote platform is SP1Z). The five-minute chart below
demonstrates the KTN holding, further confirmed by a “tail”
pattern. Bear in mind I do not use candlesticks regularly (so this observation
may not be 100% accurate), this pattern was pointed out to me by one of my
traders when I was calling out the 1036-37 level.

Most of the thick, liquid stocks of the S&P and Nasdaq had great run-ups
off this area and offered traders anywhere from one to two points, depending on
the stock you traded. Stocks like Nvidia
(
NVDA |
Quote |
Chart |
News |
PowerRating) and Analog
Devices
(
ADI |
Quote |
Chart |
News |
PowerRating) had very nice moves off the early morning lows. See charts
below.

The fact that the market once again closed on the lows is not a good sign.
Patriotic buying, while an admirable idea, just does not make sense given the
political and economic climate. Past excesses still need to be accounted for, so
I suspect we have not seen the lows yet. Nonetheless, from a trader’s standpoint,
there are many opportunities intraday, so take advantage.

Yesterday I had mentioned that the market will be trading on emotions for the
most part over the next few sessions as the tragedy in New York is played out in
the financial markets. Any time there is a real shift due to the introduction of
fear and greed into the marketplace, it always makes for some excellent trade
setups. I believe Polycom
(
PLCM |
Quote |
Chart |
News |
PowerRating) offers a great opportunity
currently from the short side. I make my case with the following bullet points:

• The stock has run up due to the belief that Polycom’s products — high-end
  voice and video conferencing equipment — will become a prime alternative to
  conducting business meetings in the wake of the tragedy in New York. While I
  believe there is some truth to that, it does not warrant a price spike of
  31%.
• While business travelers will lay low for a while, once a sense of
  normalcy returns, the true business professional will know that the best way
  to do business is still face to face, not via phone or video. This will
  result in the business traveler hopping back on a plane.
• With the Federal government pledging to assist the ailing airline
  industry, you can bet that they will be aggressively courting the business
  traveler with competitive fares.
• From a technical standpoint, it failed to hold above its 200-day moving
  average during Monday’s price spike. Not a good sign.
• From a valuation standpoint, this stock is rich, sporting a P/E of 51.9.
  In addition, net income, EPS, ROA, ROE and most importantly profit margins,
  have shown significant declines year-over-year. 
• I would have a stop loss resting around $27.25

Key Technical Numbers: (futures)

I will be in TradersWire periodically throughout the day sharing my
observations. I encourage you to join in. There are many informed participants on
TW which can add a solid piece to your trading. As always, feel free to send me
your comments and questions. Have a great day.

Dave

P.S.
I’m looking forward to sharing the nuts and bolts of how I trade at TM2001
in early October. You’ll learn the two big keys to my trading: 1)
How to define a powerful intraday trend; and 2) The precise
parameters that tell you where to enter your trade in the midst of that trend.
I will also explain to you the “feel and rhythm” that enables me to
trade like a “machine.” This is one element of my trading that I could
never convey on paper through a set of rules or a formula. You’ll just have to
meet me in Las Vegas, and you’ll know what I mean!