Watch Action In Leading Stocks
Last week was Greenspan’s–not the institution’s, who basically didn’t show up. Despite inflation jitters, the bonds did finish up for the week.
Some defensive money moved into some of the non-cyclicals and utilities (not surprising considering some of the inflation news last week), which were the only sectors to finish up on the week. The S&P, Dow, and NASDAQ all finished slightly down, but still above their 50-day exponential moving averages, which are still trending up. If the market is going to rally, it should come from these levels.
I look for trouble if the S&P trades below its five-day low of 1321.14 and the April 30 minor low of 1314.55. Some of the valuations of key growth stocks like EMC (EMC) and Microsoft (MSFT) have become compressed. Institutions have cut back on these and other leaders as valuations got too far ahead of earnings. MSFT traded down from 95 5/8 at a price earnings ratio (P/E) of around 95 to around 77 and a P/E of 56. EMC dropped from 135 and a P/E of 85 to a low of 94 and a P/E of less than 60. Keep watching the volume and movement of these and other key stocks for an indication of when and if institutions will come back and add to their positions.
Target Stocks Of The Day  Keep your stops tight; there hasn’t been much follow-through in many stocks the last two to three weeks. Here are a few setups: FMC Corp. [FMC>FMC], [PX>PX] Dow Chemical [DOW>DOW], Tandy [TAN>TAN], Automatic Data Processing [AUD>AUD], Rockwell [ROK>ROK], Alcan Aluminum [AL>AL].
In the energies, watch Schlumberger [SLB>SLB], which has re-crossed and closed above its 50-day moving average. Halliburton [HAL>HAL] and [BHI>BHI] both closed near the tops of their ranges and could pop today. Sunoco [SUN>SUN] is more of a value play. It jumped up, making a wide-range bar and closing at the top of its range on more than 132% of its normal volume.
Remember: This is a holiday week and most of the action will be in the first three days. Last year, the Dow traded -39 and -18 the last two days before the holiday weekend and -151 the first day after it. Don’t assume the market will automatically be up before the long weekend.
Program trading numbers  Buy: 6.00. Sell: 1.90. Fair Value: 3.90.
Editor’s note: If you want to learn more about Kevin Haggerty’s trading strategies, click on the link below to go to his new series of tutorial articles.