Briefing says "The type of aggressive bidding for stocks currently being seen in the market suggests that large-cap stocks may be preparing to roll-over."
Updated: 22-May-01
General Commentary
It's beginning to feel like the old days. You remember, the period in late 1999 through early 2000 when investing became a dart throwing contest and most participants hit bull's-eye. Question must be asked, is this a good or bad thing?... Over the near term, return of the speculative fervor to the marketplace bodes well for traders, momentum players, and those investors willing to take profits into a move... On the flipside, the type of aggressive bidding for stocks currently being seen in the market suggests that large-cap stocks may be preparing to roll-over.
That said, we would not want to get on the bear side of these stocks just yet. Big-cap tech lagged the market over the past few weeks as investors took profits into the short-covering fueled run. Given proximity to lows, more conservative investors will view tech bellwethers such as Cisco, Sun Micro, JDS Uniphase, Corning, EMC as the place with the least downside risk. Strong demand for these stocks argues for further upside, despite readings that suggest corrective activity on the horizon.
With respect to hot sectors such as enterprise software and storage, which have seen top names deliver triple-digit gains from April lows, favorable chart configurations will continue to attract momentum players to the stocks. Traders should be on the watch for issues making new highs for the recovery. These will be the same stocks short-sellers targeted for aggressive pullbacks in anticipation of a sell-the-news reaction to the Fed rate cut announcement. Momentum players will recognize this, and use the positive momentum as an opportunity to apply pressure to the shorts... It's usually the stocks that have run the farthest that put up the 7-10 point one day advances. In most cases, the antics of momentum players and the furious covering of positions by shorts are responsible for the majority of the move... As discussed last week, investors are using the window between the recent earnings season and the upcoming warning season as an opportunity to press stocks. Until additional datapoints are presented that suggest further deterioration in IT spending or the overall economy, investors/traders will have little reason to abandon their positions in the tech sector.
Damon Southward |
