Where To Focus
Now that last week’s lifeless market is behind us
and the rather negative stories continue to dominate the landscape, it may be
time for Mr. V (Volatility) to make his
return.
Normally, options expiration is a very “odd†period in terms of trading, the
intraday moves, while volatile, are notoriously unpredictable by the standard
measure that I use. Last week’s expiration however was incredibly dull. I did
very little in the way of trading from an HVT
perspective, and focused mainly on setups on the 5-, 15-minute or hourly bars.
Going into this week however, I expect a market more suited to HVT. In fact,
with some of the reading I have done over the weekend, I feel that the banking
sector as well as IBM
(
IBM |
Quote |
Chart |
News |
PowerRating) will be the
areas to focus one’s attention.
As regular readers
know, my style is based purely on technicals. Rarely do fundamentals play a part
in executing my intraday trades. However, macro events can alert one to
potential areas where volatility will be most likely, thereby resulting in
numerous setups. I feel that stocks like IBM, Citibank
(
C |
Quote |
Chart |
News |
PowerRating), Bank of America
(
BAC |
Quote |
Chart |
News |
PowerRating)
and even perhaps a few brokerage stocks like Merrill
Lynch
(
MER |
Quote |
Chart |
News |
PowerRating) and Morgan Stanley
(
MWD |
Quote |
Chart |
News |
PowerRating) may be the place to be this week.
Knowing why certain areas are active is important simply
because it can increase one’s conviction on a trade. If you know you have a
great technical setup PLUS the market is viewing that particular stock /sector
in a negative/positive way, it will allow you step up and go for the
throat. Remember, brief periods of market volatility offer the best trading and
that’s also where most traders make the majority of their yearly income. I am by
no means indicating this will be the case this week or even next month, but I am
starting to see some storm clouds on the horizon. Just a couple of weeks ago,
the Tyco
(
TYC |
Quote |
Chart |
News |
PowerRating) debacle allowed my office to clean up in a little more than a
week’s time. Being prepared for the next “Tyco†will be rewarded.
As most of you
already know, IBM dropped a bombshell on
Friday by “revealing†that the “neglected-to-mention†sale of one of their units
to JDS Uniphase
(
JDSU |
Quote |
Chart |
News |
PowerRating) for $300
million. It would appear at first glance that the proceeds from that sale offset
operating expenses. Staff accounting Bulletin 101 is very clear that gains from
the sale of assets have to be in “the other income†line, not to offset
expenses. (Friday’s New York Times did a very good article on this
subject for those who want more details.)
Again, this is not for me to judge since I clearly do not have the expertise nor
all the information necessary to draw a definitive conclusion. One thing I do
know, when IBM trades big volume and is
volatile, that is where I want to be.
The Banking Sector is also beginning to show signs that all is not well. The
recent parade of companies (Qwest,
Symbol Technologies, etc.) being shut out of
the commercial paper market has allowed them to fall back to their banks for
extensions on their credit lines. These credit lines are what most banks include
in their contracts in order to secure the deal. Why else would
Citibank and J P
Morgan have ponied up close to $3 billion to
Enron when it was on its deathbed? The contract stipulated it had
to. These are potential time bombs in the making, and as a result, some of the
large money center banks are beginning to trade pretty well intraday.
Table
courtesy Forbes, data courtesy Prudential Securities
Key Technical Numbers
|
S&Ps |
Nasdaq |
| 1130 | 1510 |
| 1122-24 | 1504 |
| 1114-16 | 1488-90 |
| 1108 (confluence) |
1486 (critical support) |
| 1099 (confluence) |
1472 |
| 1091 | 1462 |
| 1085 (critical support) |
1452 |
| 1081 (critical support) |
1437 |
| 1076.5 | 1425 (critical support) |
| 1061 (critical support) |
1412 |
| 1395 | |
| 1370-73 | |
| 1364 (critical support) |
As always, feel free to send me your comments and questions. See you in
TradersWire.