Tough Lessons

Friday’s debacle in stocks like Micron Technology (MU) and
Compaq (CPQ)
certainly demonstrate why you shouldn’t carry tech stocks overnight unless you hold puts or
have some other option strategy in place.

Goldman Sachs took MU off its recommended list Friday morning and the stock opened at 59,
down 7 13/16. It traded down to 54 before closing at 57 3/4, down 13.8 percent. If you got
caught in this, you had no chance. There was a big sell imbalance on the opening, and the specialist
was probably long and wrong from the day before and needed to take the opening down as low as
possible to find buyers. Micron failed to rally from the opening, which means the specialist was
probably lugging inventory from higher levels.

It’s pretty evident that some institutions were on “page one” prior to the Friday
massacre. Micron dropped 7.2 percent on Thursday, never once rallying with the programs. (The S&P
500 rallied from 1:00-4:00 p.m. Thursday, but MU didn’t budge.) That means there were
institutional sellers that needed to get big volume done–they had to be aggressive on the
sell side. Now you know why.

Away from techs, there was positive action in drugs, specialty retailers, and financials.
You must be nimble if you’re going to play some of the intraday rallies that
occur in tech stocks that have gapped below their 50-day EMAs. I am more comfortable looking for
opportunities in the groups mentioned above. If the S&P 500 trades above Friday’s high of 1246.54,
it will accelerate; take the long SPDR trade.

Target Stocks Of The Day  The following stocks all finished up on Friday
and are either consolidations or continuation patterns after pullbacks from highs (look for
entry trading through Friday’s high): America Online [AOL>AOL], Chase Manhattan Bank [CMB>CMB],
Merck [MRK>MRK], Schering Plough [SGP>SGP], American Home Products [AHP>AHP] Bausch & Lomb
[BOL>BOL], Abercrombie & Fitch [ANF>ANF], Kohl’s [KSS>KSS], Safeway [SWY>SWY], and
American International [AIG>AIG].