Zero Tolerance Market

  • October 19, 1999
  • Kevin Haggerty

Zero Tolerance Market The Turk showed up yesterday at 3:15 PM ET and took the S&P futures up 25 points, which enabled the S&P 500 cash to finish up 7 points on the day, while many of the Nasdaq high-flyers took another hit: The NDX closed down 42, despite the strong tech rally in the last hour. The up-down volume ratio was negative and breadth was awful at -875 (in favor of declines). That tells me mom and pop were not buying stocks yesterday with the Turk.

Any rally in the S&P 500 will be met with resistance at the 1290-1310 level
Lexmark (LXK) issued a fourth-quarter slow-down warning and took a 30% hit, opening down 25% (at 70) from the previous day’s close at 93 before closing at 65. LXK is a 95 RS and 95 EPS stock in Investors Business Daily. This is a no-tolerance market in the techs with extended valuations if they happen to stub a toe. With the S&P up less than 2% going into Monday, portfolio managers cannot sit and watch some of the big gains evaporate without cashing in some chips. The exits will get very crowded and the tape will get very ugly if all the greater fools go home. The Nasdaq market will get so thin, you won’t believe it.

Banks had an oversold pop yesterday, but week after week various analysts have tried to pick a bottom and the bank index [$BKX.X>$BKX.X] continues to make new lows. It will take a rally in the bond market for the banks to sustain any momentum. Drug stocks were green the entire session.

Any rally in the S&P 500 will be met with resistance at the 1290-1310 level, which is the pullback level where shorts will be established and more institutional selling in some of the extended valuation stocks will continue. We are due for an oversold rally in both stocks and bonds, and a string of positive earnings and the Consumer Price Index (CPI) might be the catalysts. This is more about Greenspan and not the PPI, which, excluding food, energy and tobacco was unchanged from a year ago.

Dell gave a third-quarter warning, and is trading down 3 1/2 (below the 200-day moving average) around 8:30 AM ET, and MSFT, INTC, CSCO and WCOM are trading in sympathy, all down 1/4-3/4-point.

Target Stocks Of The Day Stocks to watch in case we get in a rally mode or a reflex mode from the five-minute charts: General Electric [GE>GE], Johnson & Johnson [JNJ>JNJ], Citigroup [C>C], Wal-Mart [WMT>WMT] and Tandy [TAN>TAN].



Program Trading Numbers
BuySellFair Value
10.807.709.10
Also watch America Online [AOL>AOL], Microsoft [MSFT>MSFT], Texas Instruments [TXN>TXN], Sun Microsystems [SUNW>SUNW] and Merck [MRK>MRK], which had a good day yesterday, finishing in the top of its range; there could be some carry-through there.

I selected these stocks because you want to stay with the stocks that have more liquidity, more depth. Some of those high-flyers are going to be up and down 5-6 points; those of you with experience can play those, but the market markers have a tendency to disappear very quickly in this kind of tape, so you have to be very quick to play them both ways.

If you want to learn more about Kevin Haggerty’s trading strategies, click on the link below to go to his series of tutorial articles.