What NYSE specialists may already know about October

The current market is firing
positive signals concerning the coming months. Naturally, earnings season will
prompt reactive swings. In a bull market good earnings reports lead to
breakouts. The month of October is typically a time when bottoms are made.
This year it is my contention that the bottom was established in April; and
the test that occurred in August is now over. This year, January and April
(months that typically produce good performance) rattled investors and
traders, resulting in rare drawdowns. This year the month of September ended
with the markets gaining for the first time since 1998. It is the first
winning September in 6 years. The market is short-term positive. Only the COMP
trades slightly below its 50-day line. The 50-day line measures
intermediate-term prospects. All other major averages, including the NDX,
trade above the 50-day moving average as well as the 10-day and 200-day
averages. October is typically the month when bottoms are made. September is
the worst performing month of the year; and the negative action that is
typically displayed in September carries into October, forming a bottom during
the course of the month that unusually leads to a year-end rally. This pattern
happens regularly year after year. November and December are two of the best
performing months of the year. This year has been different. Things are
different because January and April, two other solid performing months in a
typical year, failed miserably this year. The best way to engage this current
market is having positions long and short, not necessarily in pairs. To get
the most out of the instruments employed be certain of the stage of trade
within a stock or the market’s cycle.

Making an attempt at
forecasting the direction of the market is futile. Index funds are mediocre
relative to performance this year. The best way to get involved in the market
is having the ability to trade the swings that occur as traders and investors
shift focus. Energy and metals have provided the best returns this year. The
risk in stocks that have already advanced powerfully presents greater risk. On
the other hand,” don’t fight the tape,” so to speak. The market at this time
is neutral at best and locked in a trading range that indicates stiff overhead
resistance and solid support at key inflection points. Frankly I am not
convinced that this current bull market has much left in it. The next quarter
will tell the tale and I am inclined to listen and watch how this current tape
unfolds. At the present moment the market is neutral with a positive bent. Get
ready for some volatility in the coming 30 days as reactive gestures test
those important levels. Those levels are: DJIA 10720, SPX 1246, COMP 2187 and
MID 725. That is the zone all popular averages must cross to extend the
current bull market. This is not about thinking or predicting. It is about the
tale of the tape. If the market has the power to cross those levels then this
bull market persists and higher price points will be established. On the other
hand, in this neutral environment this market could give it up. What will it
give up? Bulls will pass the baton to the bears to squeeze the juice out of
it. Support levels that have to hold to keep this bull market alive are DJIA
10350, SPX 1200, COMP 2080 and NDX 1535. If they all fall below those key
lines of support then the cyclical bull that began in March of 2003 will be
over. Let the market speak. That is the trading range of this current market
and the momentum has shifted in the favor of the bulls; and it is prudent in
that case to give it the bullish benefit of the doubt.

This piece, as
always, will focus on leading longs and shorts. I don’t really care which side
of the coin is played. I do not really see light and dark. The objective eye
just focuses on what is, without emotion. In this piece I will get into a
variety of stocks that are favorable long and short. What does favorable mean?
It simply means that the following instruments offer good odds to enhance the
pocketbook, provided they are played prudently. I am involved in each one.
Each stock mentioned is a position carried in the fund I run. I watch these
stocks like a hawk. I am intolerant of failure. I care about winning and am
willing to take losses to protect what I have. Each stock focused in this
piece provides favorable odds to gain long and short. I am into charts. That
is what I focus on. Let the fundamentalists analyze a million ways till
Sunday, for all that really matters is the direction of the price over 10, 50
and 200 days. If you are a day trader then a minute-by-minute chart is all
that matters. The most effective way to play the current market is on a swing.
Each stock focused on in this piece is good for a swing. A swing trade is an
intermediate-term play. The time frame is 10 to 90 days; that is a swing.
Let’s get into the swing of things right now and go for the following longs
and shorts.

Good Longs

Apple Computer
(
AAPL |
Quote |
Chart |
News |
PowerRating) OTC 53.61

Is it timely? What
does the tape say about this gem? AAPL trades in a mature advance. The advance
is mature. It is still advancing and therefore timely. A plateau has yet to
form. The advance is in tact. It could be played for a swing trade. It has
necessary momentum to lead when overall market conditions improve. It has led
with ease this year. AAPL is up 66.49% this year and 177% over the last 52
weeks. It is safe to say that the advance is mature. Are you scared to get
involved because it has already gained greatly? Let the tape dictate the
terms. The past is concerned with what already occurred. The past ought to be
viewed as something that is indeed behind us. What about right now? Forget
about what has already happened. AAPL trades above all key inflection points.
Its 10-day moving average is 52.75. It is extended. Approach it with cautious
confidence. Use stops. Investors ought to use the 50-day line. Traders can use
the 10-day line. It’s good for a swing.

Autodesk, Inc
(
ADSK |
Quote |
Chart |
News |
PowerRating) OTC 46.44

A fundamentalist
shudders at the thought of a stock like this. The chart tells an entirely
different tale. The chart tells of a healthy stock. No question about the
advance getting a second wind. It is in the heart of a hearty advance. It is
what you want out of a long position. It is giving those involved what is
wanted — and that is higher price points. More buyers than sellers. It is as
simple as that. It is all you really need to know. The evidence relative to
its price action favors a bullish stance. The stock is up over 22% this year
and near 10% in the last 5 days. So what about its advance? It has legs,
doesn’t it? The chart tells the tale and provides the evidence of a nice
advance that has the strength to carry it to higher price points. It made its
52-week high on 9/30. What a way to end the quarter. For those
number-crunching fundamentalists out there, earnings will be announced on
11/17. Estimates have been bested consistently. Growth is consistent with
street expectations and the stock is popular right now. The way to buy it is
coming in to the 44 zone. That is a decent price to grab it. The advance is
actually young. The stock paused and struggled trading below its 50-day line
much of the year. Now it is resuming what has been a stunning run. ADSK is up
88% in the last 52 weeks. Place the stop at 34.75 for investors and 39.75 for
swingers. Short- term traders ought to use the 10-day line at 42.75

Compania de Minas Buenaventura
(
BVN |
Quote |
Chart |
News |
PowerRating) NYSE 31.05

I spoke about this
before, and have been involved in it for a while. It’s not the only gold stock
I own. There are two more on the focus list. Gold mining is hot. There is a
reason for it. When stocks are bearish, and the current environment for stocks
is bearish from a secular perspective, hard assets tend to advance. Gold is in
a secular bull market, as is energy. Gold stocks are clearly favorable, and
the evidence is found in this stock’s pattern of trade. It trades above all
key inflection points. It is moving to challenge the high made on the breakout
that occurred recently. It closed the quarter powerfully and in heavy trade.
It is extended but the advance is powerful. It is stunning. It is gorgeous. It
provokes pleasant feelings. It is delivering pleasure to shareowners today.
Today’s pleasure almost always becomes tomorrow’s pain. Watch out and stay
committed. Never get complacent. No room for that attitude. Complacency leads
to resignation and resignation is death. So stay with it and watch it
carefully and stick a toe in its little pond and take a few chips in hand and
play it. Play it. Stick a toe in and play it coming in at 28-29. If it rises
above the previous high at 32 (made on 9/16) then get involved in a more
meaningful way. Place the stop at 29.80 for traders and 25.99 for those who
want to play this secular bull in metals all the way.

Cardinal Health
(
CAH |
Quote |
Chart |
News |
PowerRating) NYSE 63.44

A gem of a stock
right now if there ever was one. It is a gem of a stock. Why? Gaze at the
chart with your eyes and see what I see. I see an advance that is young. I see
a young advance. Support is at 60, and a good price is around 60-61, right at
its baseline. It needs volume. It could break out in heavy volume and that
would seal the deal. Place the stop at 59.75.

Comverse Technology
(
CMVT |
Quote |
Chart |
News |
PowerRating) OTC 26.27

The stock is
borderline and close to screwing up. It had good action at the close of the
quarter but the volume just wasn’t there. The action in the stock ought to
compel shareowners to pause and have concern over its trading pattern lately.
It is oversold, but does it have the strength to rise above the peak it made
the other day? That is the question of concern. Going over 27.95 on a close
will convince me that this stock has the legs to provide big gains for
investors. That is the magic number. It could be nibbled at in here, and
placed on a short leash. The stop ought to be placed near the moving averages.
Investors use 23.99 while traders keep it close at 25.79.

3Com Corporation
(
COMS |
Quote |
Chart |
News |
PowerRating) OTC 4.08

What in the world
am I doing in this piece of junk? It is pure junk, isn’t it? You can make
money in junk if the timing is right. What is the story behind the action? Who
cares? The story is the action. The action right now is good. What do all
stocks do no matter what? All stocks trade in stages. They rise, top, decline,
base and rise again. That is the gist of it. It doesn’t get simpler than that.
COMS is simply in a new advance after building a decent base that followed a
brutal decline. It bottom at 2.96 in April. It traded at 9.34 in 1/2004. It
was 20 in the year 2000. It is at a good price right now to begin the process
of building a position, if it is more money that you seek. Seeking a fatter
pocketbook? Building a position in COMS will enable that. The chart tells that
tale loud and clear. It trades above all key inflection points. It is in a
brand new advance. Place the stop at 3.45.

Evergreen Solar
(
ESLR |
Quote |
Chart |
News |
PowerRating) OTC 9.33

A key to success
in playing the market is the ability to be flexible. That is what is called
for each and every day. ESLR is a stock that I chose as my number one pick in
2005. It has proved worthy of the choice. ESLR is up 113.5% over the last 9
months. It is held by bullish hands. Bulls control the action in this leading
edge name. Energy alternatives. Makes all the sense in the world these days,
doesn’t it? ESLR is not the only stock of its kind. There are others in the
alternative energy space that are even more extended than ESLR. Get involved
because the advance is getting an extension and there is no way of knowing
when a top will form. Be flexible and don’t hesitate to sell if lines of
support are violated. Place the stop at 7.99 on a swing and adjust that stop
in line with the 10-day line.

I Shares MSCI Japan Index Fund
(
EWJ |
Quote |
Chart |
News |
PowerRating) AMEX 12.19

The NIKKEI 225
will sprint to 14k. That is what is happening right now in Japan. The NIKKEI
225 is the top major market in the world, up 18.15% this year. The SPX is up
1.39% while the Dow is down 1.99% this year. So it is clear that Japan is
leading the US market and it is obvious that it is a place to invest right
now. You invest in stocks to fatten your pocket with capital. That is what it
is all about. EWJ is fattening my wallet. I was fortunate to recognize the
trend back in early August and hitched a ride. It has been pleasant, at least
as long as the advance persists. The position in EWJ remains in place. What
about getting involved right now with fresh coin? It is bound to come in after
the solid run over the last two months. Grab it coming into the 11 zone. Place
the stop at 10.99.

Intersil Corporation
(
ISIL |
Quote |
Chart |
News |
PowerRating) OTC 21.78

This stock is on a
roll. The advance is getting into gear. It made its 52-week high on 9/30
before backing off to close out a great quarter. ISIL is well on its way to
test its peak at 29.29, made almost 2 years ago. It’s on its way with sticky
points to solve on the way toward major resistance at 30. That is the ultimate
target for long-term investors. It has plenty of room to get there and it’s on
its way. Place the stop at 20.25 and 17.99.

Marvell Technology Group
(
MRVL |
Quote |
Chart |
News |
PowerRating) OTC 46.11

The stock faltered
momentarily and is now back on track but not yet out of the woods. It has to
rise above 48.20, a high point made on 9/12. It touched its 50-day line on the
pullback and bounced. That is bullish. The action is very bullish if it rises
above 48.20 on a close. No question about that. MRVL is leading the market big
time. It traded around 11 at the start of this cyclical bull in March of 2003.
Now look at it. Come and just gaze your eyes at the chart and see what I see.
I see a bullish chart. Bullish charts translate into fatter wallets if you act
on a recognizable advance. I can’t emphasize that point enough. Place the
protective stop an arms length under its 50-day line at 43.39

JDS Uniphase
(
JDSU |
Quote |
Chart |
News |
PowerRating) OTC 2.22

Those involved
years ago are gone. New and fresh money is pouring into this popular dog. It
is a dog no longer — at least for now. Current circumstances are very
important in the action of JDSU relative to trading and price. The concept of
NOW ought to be embraced as an objective eye falls upon its chart. It is a low
risk to make a big bet on this stock right now. A low risk. Look at the chart
and see the movement. See the pattern. See it rise above the top of its
baseline in heavy trade. The advantage of liquidity enables an easy in and
out. JDSU is a good trading stock right now. Now, place the stop at 1.79

Lucent Technologies
(
LU |
Quote |
Chart |
News |
PowerRating) NYSE 3.25

When I sold LU in
January of 2000 at 53 lots of yelling and screaming occurred as confirms were
received in the mail. Well, little did we know that LU would subsequently drop
all the way down below a dollar and dwell in the environs of the madcap world
of penny stocks. LU became a penny stock for a while. How low can you go? LU
is in a new advance. A close above 3.30 is a signal to buy it. It is nice and
liquid. Easy to trade. Similar to JDSU. Similar to the NT. Place the stop at
2.99.

Nortel Networks
(
NT |
Quote |
Chart |
News |
PowerRating) NYSE 3.26

It is ready to
rocket higher. Another dog of a stock that is getting ready to engage a
serious advance and climb to higher points after bottoming in May at 2.26. The
stock is in a pattern that provides a fighting and favorable chance. Get
serious about the position and build on it if it can cross 3.38 on a close.
That is the zone to watch and it also has the advantage of good liquidity.
Place the stop at 2.88.

Procter & Gamble
(
PG |
Quote |
Chart |
News |
PowerRating) NYSE 59.46

From junk back to quality. Blue chip. It is lovely to be able to participate
in the upward movement of a quality stock, as it broke out above its high made
in December 2004 at 57.40. It broke nicely and that establishes favorable odds
that the advance that began in March 2003 will get extended. Good news for
shareowners. This is a new advance. PG is up just 7.95% this year with almost
5% of that gain coming in the last 5 trading sessions of the 3rd quarter.
That’s stunning, to say the least; and I am delighted to have recognized the
positive energy in the action. Buy it coming in to 57.50, and if it should
happen to cross 60 in heavy trade then go after it aggressively. Place the
stop at 54.49 for a swing.

Union Pacific
(
UNP |
Quote |
Chart |
News |
PowerRating) NYSE 71.70

The action
displayed by the railroads tells the tale of a hearty economy, in spite of
rising interest rates. Ask the question about where the rates rose from? They
rose from nothing. The economy can handle 4% Fed Funds; and the railroads are
telling the tale of lots of activity to come. Railroad action provides a good
indication of how the economy is down the road. Railroads are back in favor
after a pause. UNP is one of the better plays right now because others are
extended. Buy coming in to the 69-70 range. Place the stop at 68.50. Investors
can use the 200-day line.

Good Shorts

Starbucks
(
SBUX |
Quote |
Chart |
News |
PowerRating) OTC 50.17

SBUX is a good
short up to 52.49. If the stock is able to cross that line then cover and move
on to other chances. I say it loses its steam and fails and the lows get
lower. That much is clear if you examine its pattern of trade. Now it is a
timely short with little risk. Little risk because the position is controlled
by a stop that will be followed. It’s a simple play.

Sonic Corp
(
SONC |
Quote |
Chart |
News |
PowerRating) OTC 27.35

So as I finish my
morning coffee, purchased many hours ago at the crack of dawn at the nearest
Starbucks, I shift gears into another retailer of food. SONC is in trouble.
The stock is in decline and currently oversold and ought to be sold short if
it can rally up to the 29 zone. That is the closet to ideal you can get right
now. Check out the chart and see the decline. It is down over 10% this year
and up 5% in the last 52 weeks. SONC is down 4.57% in the last 5 days of the
quarter. The decline is getting more serious and short sellers are getting
fatter. Take advantage of the decline and sell short SONC. Place the stop at
31.75

Advanced Medical Optics Inc
(
EYE |
Quote |
Chart |
News |
PowerRating) NYSE 37.95

I see an
opportunity on the dark side. Turn a dark cloud into a beacon of light and
sell short so that some value can be had from this instrument that is on the
verge of a nasty spill. Look at a daily chart and see the long top formed. It
is ready to roll over the edge and fall. There is some support at 35. If it
falls below 35 then short sellers that have open positions will see their
pockets bulge when the gain is booked. Short it up to its 200-day moving
average at 39.35. Place the stop at 40.01

Darden Restaurants, Inc.
(
DRI |
Quote |
Chart |
News |
PowerRating) NYSE 30.37

Another restaurant
and another timely short. It is important to go both ways. It is more
effective; and performance ought to be bolstered having short positions in
stocks that are in decline. DRI is at the outset of a decline after achieving
a stunning advance over the last year and change. Now it is taking a hit and
the way to play it is short. Now is the perfect time to sell short with little
risk because stop losses keep wrong choices from hurting badly. So place the
stop above the rapidly declining 50-day line at 32.10

American Eagle Outfitters
(
AEOS |
Quote |
Chart |
News |
PowerRating) OTC 23.53

Consumer
confidence is low. The market is telling of a consumer that is growing
cautious in this credit card economy. Confidence is down and all the shorts
mentioned are instruments of companies that deal directly with the consumer.
Just check out the chart and its trading pattern over the last 10, 50 and 200
days and notice a stock in decline. Now is a good time to short AEOS, and a
rise to 25 makes it a compelling short. It broke hard in heavy trade the other
day. It is coming off a stunning advance. The decline has just begun. Shorting
AEOS is timely. Place the stop at 26.50.

Guitar Center, Inc
(
GTRC |
Quote |
Chart |
News |
PowerRating) OTC 55.21

This is so ready
to fall. It really is. The chart tells that tale. The decline has not set in
yet and when it does it will be highly profitable for those that take
advantage of it. The way to exploit this stock is to sell short and buy back
at lower prices after the landing. It could fall down to 47-48 where it has
decent support. It is a timely short. Place the stop above its declining
50-day line at 59.15

Psychology of the Market

The market is
neutral and so is sentiment. It could go either way. The month of October will
reflect cautious hands, as commitments to positions will be shallow. Stocks
are dropped like used tissue paper when they outlive their usefulness. A stock
is useful when it displays enough movement to generate a return in either
direction. A classic stock picker’s market. Good stock pickers are not
necessarily good traders. Good traders have the ability to execute well and
trade around their positions on a daily basis using leverage to maximize
returns. There is a lot of that happening in the market right now and that
accounts for a great deal of the volume seen today. It would be encouraging if
volume picked up and prices crossed key inflection points. Even stocks that
are rolling over will participate. The season of strength is at hand. Earnings
news will get a reaction. Earnings ought to reflect well in leading stocks.
They are leading because they have the ability to satisfy perceptions. NYSE
specialists, the know-it-alls on the floor of the exchange, are light the dark
side. Little action from them on the short side of the equation. The public is
heavily entrenched in darkness. That accounts for the difficulty this market
has as momentum built quickly loses steam. If the markets are able to cross
the levels mentioned earlier in the piece then confidence will quickly build
and money will flow into stocks and the cyclical bull market lives another
day. If the levels on the downside are all violated then a new bear market
gets going and takes its toll sapping the strength out of the liveliest
leader. The best bet right now is more of the same as the neutral sentiment
keeps the undercurrents in balance.