Weak Market Infrastructure

Yesterday, volume and institutional block activity
off noticeably. The techs tried to make up some of last week’s 12-15 percent loss, with Dell,
Microsoft, and Intel–the best of the bunch–all gaining approximately 3.5 percent.

But the tape is just plain ugly. Breadth has been negative for the sixth day in a row, and
32 percent of NYSE stocks are above their 200-day moving averages. In addition, each day brings
more 52-week lows than 52-week highs–even though the market is near its highs. What’s that
all about? The financials are in the doghouse: The Philadelphia bank index and utility index are
both mired under their 200-day moving averages. Interest rates, anyone?

The bottom line: The techs haven’t corrected enough. The financials must rebound and breadth
must improve before the market can get going again. The cyclicals won’t be able to carry the
speculative bubble all by themselves.

Intra-day trading opportunities still look better than position trades, from both profit and
risk standpoints. The only exceptions are some of the cyclicals we’ve discussed (remember to use
tight stops). Intra-day volatility in recent market leaders continues to provide trading
opportunities, like the ones in Gap [GPS>GPS] yesterday (see Monday’s commentary and an
intra-day chart). Another example is Yahoo [YHOO>YHOO], which dropped to 154 5/8 after breaking out of the
pattern below 167 1/2.

Target Stocks Of The Day  Amgen [AMGN>AMGN] is in a narrow-range pattern,
similar to
Yahoo yesterday, and could move on a breakout of yesterday’s high or low. Equant NV [ENT>ENT] is
a continuation pattern that could break to new highs; it made a good reversal yesterday after
gapping down on the opening. But the tape must be on your side for this one to work.

CVS [CVS>CVS] didn’t give an entry opportunity yesterday, but it is still a continuation
pattern that could move above yesterday’s high. Pfizer [PFE>PFE] is a tease; it made a higher
high, low, and close yesterday, and could make a run at new highs above 134 1/2. Ford [F>F]
closed yesterday at 58 7/8
on a re-cross and close above its 50-day moving average. It’s a good continuation pattern but
it needs a good tape today to get going.