Techs Do Their Thing

Another power move in the major techs, such as EMC, CSCO, IBM and the born-again HWP. AT 3:45 PM ET the Dow was up 148 points, with HWP accounting for 80, IBM 22 and INTC 14, for a total of 116 Dow points out of the 148–78%. Good thing MSFT isn’t running at the same time–we’d have 200 point days every day.

At the same time, however, the advance-decline line was negative–not good. It was a momentum stock rally only. The up-down volume ratio was positive, as the money was concentrated in the momentum stocks, and total volume hit 1 billion again. All this with the long bond trading down for the third day in a row. Greed has clearly shoved fear aside, along with the inflation (or, “what inflation?”) scenario. How quickly they forget.

It looks like a 20% year is a lock for the Generals It looks like a 20% year is a lock for the Generals, and they’ll do their best to push it higher–at least the ones who are closet indexers (a vast majority) that will eventually be replaced by DIAs, SPYs and QQQs. You gotta like the ever-changing markets.

You are experiencing first-hand why you want to be in the high relative strength (RS) program stocks the Generals must own and must force higher, in addition to their being over-weighted in them. For example, EMC corrected from 78 on October 5 to 60 on October 21. 23 million shares traded on October 20 to a low of 63 7/8. On October 21 it traded down to 60 on volume of 19 million. This volume blow-off was the bottom, which took place above a rising 200-day exponential moving average (EMA) and just below the 50-day EMA. The fear scenario was in charge then, as we were bombarded with Greenspan and IBM’s trip down to 90 (which it hasn’t seen since, closing yesterday at 97 3/4). Bottom line, EMC has risen 50% in just 21 days. Talk about a perception change. Or is it a major bull raid by some very large and long institutions for whom EMC is one of their major holdings? I think so.

The way the markets are changing, and with the changes in short-term trading rules for mutual funds and their ability to use and misuse S&P futures, there is now two classes of day traders: institutional and retail.

The VIX hit a 20-day low for the second day in a row yesterday, so be alert for a possible CVR VI signal coming today or Monday. (Read Larry Connors and Mark Boucher’s Market Timing Trading Course for more information.) The VIX also closed below its lower Bollinger Band, which I find useful to combine with the VIX signals, in addition to a close above the high of the low VIX day. At the same time you are anticipating short-side entry with the VIX signal, you should look for that close below the low of the high day on the index. If that looks like it’s going to close below, take your position near the close, because the next day there could be a gap-down opening as the futures gang raids the tape. You could take your position in the DIAs, SPYs, or QQQs–whichever closes below the low of the high day.

Pattern Setups  Today is option expiration, so expect some choppy action. Bonds closed yesterday above their 50-day EMA, as yields pushed higher, and this will be a good excuse for equities to digest some of their recent gains.

Program Trading NumbersBuySellFair Value6.003.704.90 Pattern setups include: [XMCM>XMCM]; Metromedia Fiber Networks [MFNX>MFNX]; Proctor & Gamble [PG>PG]; Adobe [ADBE>ADBE], which they continue to run; Circuit City [CC>CC], only going above Wednesday’s high–keep a tight stop; KLA-Tencor [KLAC>KLAC]; Linear Technology [LLTC>LLTC]; Computer Associates [CA>CA]; Sun Microsystems [SUNW>SUNW]–nobody seems to want to sell it so they’ll try to keep running it; Applied Materials [AMAT>AMAT]–they might try to get to the next level, and after the recent run-up, if the Generals don’t run it to real size for sale, they keep buying at the market to keep it moving. That’s the difference–they have much lower costs, and that’s how the game is played with all the stocks.

If you want to learn more about Kevin Haggerty’s trading strategies, click on the link below to go to his series of tutorial articles.