Watch, Wait And Listen

  • June 27, 2001
  • Greg Che

It is a tough environment for the
intermediate term trader, waiting and waiting until the markets become conducive
with the strategy at hand. My take on the Federal Reserve‘s
decision to cut rates another 25 basis points is positive. My rationale is the
Fed will always do what is good for the economy.

The Fed sees that the economy is
improving and is probably waiting to see how the economic numbers will play out
up to the next meeting scheduled in August. So what do we do from now until
then? Well I will do the same, monitor each important economic number and trade
accordingly by adjusting position size and using protective stops on every
trade.

Hotel Reservations Network (ROOM)
looks interesting to me. The company moved nicely out of a multi-week base.
Analyst are forecasting a long-term growth rate of 30% for the stock (from Year
Ending Dec-01 to Dec-02). Institutional ownership is at a modest 14.40% . We
should monitor how it behaves to see if the breakout will hold.

King Pharmaceuticals (KG)
is forming a high handle to its six-month
cup. Analysts are projecting revenues to increase by approximately 29% from Year
Ending Dec-01 to Dec-02 with earnings increasing from $1.24 to $1.56 for the
same period.

Advent Software Inc (ADVS)
is forming a handle for its nine-week
“W” shaped base.

Healthsouth Corp (HRC)
had a three day pullback from the major trend. Price found support at the pivot
point of the multi-week double bottom, which is bullish. Look at the divergence
between price and the Accum/Dist line;
price
made new lows which was not confirmed by the Accum/Dist line–this
too is bullish.

Sectors funds showing
strength on Wednesday were the Morgan Stanley Internet Street Tracks Fund (MII).
The tracking fund gained 4.6%.

The Ishares Dow Jones
U.S. Chemical Index Fund (IYD)
tacked on 3.3%. Also gaining ground today was the Ishares Dow Jones U.S. Basic
Material Index Fund (IYM)
which rose 2.9%.

 Close behind was
the Broadband Holdrs Trust (BDH)
which closed higher by 2.3%. 

On the losing end of
sector fund trading were the Oil Service Holdrs Trust (OIH)
which lost 5.0% as most of the major energy futures lost ground Wednesday. The
Oil Services Holdrs, looks like it could slide lower as it closed weakly and
just above the low made in April..

The WEBS-Netherland (EWN)
slid 2.5% , followed by the Ishares Dow Jones U.S. Energy Sector Index Fund (IYE)
which lost 2.4%.

Remember that all
securities are risky. In any new trade, reduce your risk by limiting position
size and placing open protective stops where you will sell your new buy or cover
your short in case the market turns against you. For an introduction to
combining price stops with position sizing, see Loren’s lesson, Risky
Business.