What’s In The Cards?
What a week.
Reality setting in on the overall state of the economy and earnings, combined
with more shenanigans by CEOs of brokerage houses ratcheted up the volatility
quite a bit. Thursday and Friday were the best trading days, as story stocks
like Tyco
(
TYC |
Quote |
Chart |
News |
PowerRating) and Dynegy
(
DYN |
Quote |
Chart |
News |
PowerRating) stole the spotlight. Naturally, the volatility is welcome. However, a
continued decline in the major averages may further erode the already fragile
confidence of the average investor. This is certainly not welcome. As I had
mentioned a few weeks back, a quick, decisive capitulation is far better to
restore balance than a prolonged trading range. Time will tell.
I received several e-mails regarding my comment
on Friday that I had covered a few short positions (longer-term positions,
not HVT related). In hindsight, that may
look a bit foolish given Friday’s price action. However, my reasons on Thursday
afternoon were well rooted. We had just experienced several days of selling, and
the S&Ps had managed to successfully hold key support. Additionally,
one of the stocks I was short, Network Appliance
(
NTAP |
Quote |
Chart |
News |
PowerRating) was holding up pretty well during the sell-off. A look at the daily
chart indicated to me that unless the 16 level was broken, the trade was showing
signs of running its course. Given that the S&Ps closed on their highs, and
with a GDP report due out the following
morning, I figured I would salvage something on the trade, and covered for a
modest profit. I did, however, establish a long position in the June S&P
futures due to a CVR 1 signal.
The following day was certainly somewhat of a
surprise. The GDP report came in better than expected, but traders and investors
for once read into the report and realized that this sharp spike was due to
inventory rebuilding, not some new bull leg in the economy. Upon seeing the
futures have a muted reaction, I sold out the S&P contract for a 3.5 point
gain. This is where subjectivity comes into play.
So what do I plan to do now for longer-term
positions? Well, I still have two short positions out there, as well as a
several longs in the gold and silver sector, defensive issues and emerging
markets. As for NTAP, I’ll get interested
when it breaks $16 (see chart above).
Looking ahead to today’s session, I suspect that
a lot will be revealed on the true strength or weakness of this market. Yes, the
market is oversold, but until there is some solid buying or a mildly positive
news story, it is tough to make a stand on the longside. Nonetheless, a solid
move to the upside is in the cards.
So where will I be focusing my attention from an HVT
perspective? On the story stocks. It appears as though there are some negative
stories swirling around Qwest
(
Q |
Quote |
Chart |
News |
PowerRating), so I
will be keeping a close eye on that one. Additionally, Tyco
and Dynegy may not have run their course, so
there should be some moves left in those issues. Also, a positive story in Barron’s
on Boeing
(
BA |
Quote |
Chart |
News |
PowerRating), as well as an upgrade by
Merrill Lynch, may offer some nice opening reversal trades.
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| 1096 | 1324 |
| 1089-90 | 1298-99 |
| 1079 | 1280 |
| 1070-71 (confluence) | 1247-50 |
| 1062 | 1228 |
| 1051-52 (key support) | 1214 |
| 1204 |
Thought For The Week:
“Remember,
the greatest risk of all is the unwillingness to take a risk.
Unless you take some risk, you have a 100% chance of accomplishing
nothing.†Tom Basso
As always, feel free to send me your comments and
questions. See you in TradersWire.