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from optioninvestor newsletter
09:00 AM EST - Pre Market Update -
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Stock futures hanging on to gains
Stock futures are showing modest gains this morning with S&P 500
futures up 2 points, NASDAQ futures are higher by 24 and Dow
futures are up 3 points. Fair value for the S&P 500 today is
$3.22. Computers are set for buying at $5.06 and set for selling
at $1.48.
Did you feel the surge?
Yesterday traders should have been able to sense the immense
release of pressure when the Dow Industrials first traded the
11,000 level and then broke above its last downward trend at
11,025. Within 30-minutes the Morgan Stanley Cyclical Index
(CYC.X) also broke above its last long-term downward trend at the
552 level and traded strong into the close as institutions
scrambled to put money to work. Both of these technical events
taking place within 30-minutes of each other tells me that the
bear is fading and now the bull is strengthening. If yesterday's
trading was a "head fake," it was one that will go down in the
history books. The markets will not go up every day from here on
out, but a message has been served to the bears that they will no
longer be able to simply short every stock in the market place
without meeting formidable buy side pressure at support.
Yesterday's action at critical resistance levels and breaking of
some long-term downward trends will have institutions (that have
been waiting for a pullback) eager to buy stocks that are
breaking out of bases or pulling back to support. I suggest that
every subscriber be looking to do the same. I've talked to a few
investors that are currently sitting in cash. Some feel the
markets have moved too far ahead of them. It's my belief that
there are billions of dollars in institutional accounts thinking
the same thing right this moment. They're hoping like heck that
we get a pullback, but can no longer sit and hope as they are now
more pressed than ever to put money to work.
One way for a trader "overcome" this fear is to begin placing a
portion of your capital into the markets. An options trader
sitting on an entire allocation of cash, might simply place 5% of
that cash into a 2 or 3-month expiration call option. That way
you've got a small amount of cash exposed to the market, but at
least you have some exposure to the bullish side should a
pullback not occur. As you follow that trade, if at any point
you find yourself saying "I wish I had bought more," then find a
similar security with the exact type of technicals and place
another 5% bet.
When I first became an investment broker in the fall of 1994, I
was scared to death to risk client's money. When the Dow
Industrials traded the 4,000 level in February of 1995 the
"market was too extended." By July of 1995, the Dow Industrials
hadn't gotten any cheaper when they were trading 4,700. Have
some confidence in yourself and draw from what you may have
learned in past commentaries. If you think a specific stock has
run too far ahead, ask yourself this. Should I short it? If
your answer is "no way in heck am I going to short something at
$69 when it has a bullish price objective of $97," then you may
not be thinking objectively.
Final note
Your frame of mind is very important. Never run a trade if you
have doubts. The above commentary is very different from what
I've ever written before. Anyone that can provide previous
commentary from PremierMarkets.com, IndexSkybox.com or
OptionInvestor.com that ever once resembled such bullishness
please let me know. I truly feel based on observations I've been
writing about since September and October of 2000, that a new
bull market was confirmed yesterday for many stocks in the Dow
Industrials and many of the deep cyclicals. You can't just
"manipulate" stocks like AA, CAT, DD, EK, GE, IP and MMM. If you
wish you had bought any one of these stocks at their 52-week lows
then wish no further. Take a look at Hewlett Packard (NYSE:HWP).
If you feel that HWP has gotten away from you at $26.74, think
about the trader/investor that bought the stock on July 14, 2000
at $68.09. Somebody bought it as it traded there.
The triple-top buy and spread-triple top has been occurring!
Attendees of this spring's OptionInvestor Expo learned how to
recognize various point and figure chart formations and put to
use the "power of probabilities." Yesterday, traders had some
opportunities to put the triple-top and spread-triple top
formations to work. Yesterday, shares of Qualcomm (NASDAQ:QCOM)
and Merrill Lynch (NYSE:MER) triggered the triple-top and spread-
triple top respectively. I'd suggest traders and investors
follow progress from here. If they progress favorably from
current levels, I'd suggest looking for other similar patterns
and look to build upon any success.
Professor Earl Davis from Purdue University assigned
probabilities to various chart formations found in point and
figure charts based on historical averages. In his study, the
triple top formation was profitable 87.9% of the time for an
average gain of 28.7% in a 6.8 month time span. The spread
triple top formation was profitable 85.7% of the time for an
average gain of 22.9% in a 7.7 month span of time.
Today, PremierMarkets.com will have its eye on shares of
Macrovision (NASDAQ:MVSN) and the triple top formation developing
should the stock trade $58. The stock has pulled into its
bullish support line (longer-term support trend on a point/figure
chart) and we view a trade at $58 as a sign that demand for the
stock remains in control over the longer-term and the stock has
just been digesting gains after a BIG move from the $34 level
back in March. A trade tomorrow at $58 would not only trigger
the triple top buy signal, but then establish a preliminary
bullish price objective (using the vertical count technique) of
$75.
Index and HOLDRs traders should have a keen eye on the
Biotechnology Index (BTK.X) and the Biotech HOLDRs (BBH). In my
humble opinion, the Biotech HOLDRs (BBH) look like they could
surge to the upside with a trade at $132. At $130, the BBH would
trigger a triple top buy signal and a trade at $132 would trigger
a spread-triple top buy signal. We'd follow any bullish trades
at the $130 or $132 level with a stop at $118 and current longer-
term bullish price objective is $193. While I'm not sure the BBH
will trade $193 in the next three days, I do think the BBH could
trade test its 200-day MA near $155 in the next week or two.
PremierMarkets.com Profiled Updates
REFRESH PAGE IF IMAGES DO NOT APPEAR IMMEDIATELY
optioninvestor.com
*** - Indicates 1/4 position in common stock
** - Indicates 1/2 position in common stock
* - Indicates full position in common stock
Yesterday, PremierMarkets.com activated two bullish positions
that we thought a bullish trader should look to trade bullish.
On May 11th (2:30 EST), we profiled shares of Merrill Lynch
(NYSE:MER) as a stock to be looking long should the stock trade
$69 and trigger a spread quadruple top buy signal. We activated
the play in our hot list at $69 for a full position. Current
stop on coverage is $63.75 with bullish target of $97. We will
adjust stop higher with time.
We also felt that traders should be looking bullish a full
position in shares of Qualcomm (NASDAQ:QCOM) on a trade at $63.
The technicals on QCOM looked favorable as downward trend would
be broken on our bar chart and a trade at $63 would signal a
triple top buy signal on the point/figure chart. With two major
technical signals demand for the stock we couldn't help but
oblige. Current stop recommended is $54.75 with a bullish target
of $78. |
