Why Caution May Be Necessary For Remainder of ’02

December 16, 2002
Dave Landry

On Monday, the Nasdaq opened firmer and continued higher
all morning. Then, after some sideways consolidation, it resumed its rally going
into the close. This action has it closing well and makes back all of Friday’s
losses.

The S&P put in a solid rally too. This action has it
bouncing off of its 50-day moving average (a).

This down-sharply-one-day-and-up-sharply-the-next-day
action is frustrating (OK, it sucks). The lack of follow through makes it
difficult for the position trader (I guess you know that if you, like me, held
shorts over the weekend). Further, Monday’s action suggests that it could be
bumpy until the end of the year as the big “boyz” play their
games–push it higher if it looks like they have the potential of a good
mark-to-market but bail out at the first sign of trouble.

So what do we do? Although Friday’s rally was
impressive, there still are many sectors, namely technology, that still look
like they have the potential to roll over. Therefore, I still think the biggest
opportunities could be in transitional shorts (e.g., First Thrusts, Bow Ties, Inverted Cup &
Handles etc.). On the long side, about the only stocks that look good are
commodity related. Independent oils and gold stocks (on a pullback) look most
interesting here. No matter what you do, keep it light as the end-of-year games
are played.

Looking to potential setups, even with Monday’s massive
turnaround, I still think the semis have the potential to rollover. Don’t be a
hero though, wait for entries and/or signs of them turning back down.

Considering the above, Actel
(
ACTL |
Quote |
Chart |
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PowerRating), mentioned Friday
night and in the specialized semiconductor
sub-sector (a), still looks like it has the potential to continue its rollover
out of a First Thrust.