Volatile Markets Demand Discipline

More of the ugly same. Yesterday, volume wasn’t huge compared to the
percentage down
moves in the Nifty 25-50 stocks that have carried the market to its lofty speculative heights.
It was the seventh straight day of negative breadth, and most of the key players were on the sell

Don’t worry about where the market might go, just focus on the stocks that have led
it. The institutions will dance with who brung ’em, and we’ll get sharp trading rallies
in these favored stocks.

On the short side, stay with the Spiders [SPY>SPY] and enter the market based on solid
patterns–don’t just pick a spot. Stay disciplined.

It’s important to adjust to the increased volatility in these stocks (that is, control your
risk) by reducing trade size. Program trading, bargain hunting and short covering lead to
fast and furious rallies you can play intraday. Let market dynamics dictate your entries.

Target Stocks Of The Day  If we rally, look for continuation moves in United
Technologies [UTX>UTX], Brinker Intl. [EAT>EAT], Clorox [CLX>CLX], AFLAC [AFL>AFL],
Bebe Stores [BEBE>BEBE], and Heinz Foods [HNZ>HNZ], which
made an outside day with big volume and closed in the top of its range. Also look for
a breakout move in Outback Steakhouse [OSSI>OSSI].

Look for solid buy entry consolidation patterns in Vodaphone [VOD>VOD] and any of the major
techs, including
IBM [IBM>IBM], which is down 19% in 15 days. (I still haven’t heard a word from the two analysts
with the
$210 and $223 price targets for IBM; so it goes.)

A final note: The Spiders closed just under their 50-day moving average at 121.82. Look for
a buy entry on a re-cross of the 50-day average, assuming it trades through and doesn’t gap
on the opening.