-307 points, just another Prozac moment in the market
From the intraday high of 10,961, only 39 points from the 11,000
goal, the DOW dropped -307 points just after noon on Friday. Just
when you thought we had another major market milestone in sight
the bond bears slipped up behind us and scared the recent profit
right out of the market. April will still go down as the best
month in DOW history in terms of points gained. Over +1000!
But with any major market move traders were getting more and more
concerned about mounting profits at risk. The DOW did bounce from
the -224 low to only -84 at the close as bargain hunters bought
The official reason for the massive downdraft on Friday was the
very strong GDP numbers. With estimates at +3.3% the actual number
of 4.5% was far above expectations. The number showed that consumers
were spending at the fastest rate in more than a decade.
Only Thursday the Employment Cost Index showed almost no inflation
and the lowest rise in employment costs since 1982. This report
had sent investors off in a rush to buy financial stocks as fears
that the Fed would raise rates soon, almost disappeared. Fridays
very strong GDP immediately rekindled those same fears and may
have actually strengthened them. Investor fled financial stocks
The bond bears hammered bonds for a full -2 points and the interest
rate jumped from Thursdays 5.52% to a whopping 5.66%. The DOW
finished April with a gain of +10.3% or 1002.88 points. The Russell
finished April with a gain of +8% mostly on the backs of some soon
to be removed Internet stocks.
The Nasdaq was in full rally mode on Friday after the midweek sell
off ran out of steam on Thursday. The Nasdaq was up over +50 points
when the GDP numbers were released and the DOW started giving back
some of its recent profits. With the DOW dropping like a bunker
buster in Belgrade the Nasdaq traders took a quick profit and ran
for cover as the Nasdaq was caught in the DOW vacuum. However another
Nasdaq sell off was not to be. The instant the DOW bounced off its
lows at 10,654 the Nasdaq buyers, sensing another buying opportunity,
flooded the market with buy orders and pushed the Nasdaq back into
positive territory in less than thirty minutes. Many of the Internet
stocks had double digit moves up, down and then back up again. A
real day traders dream!
I wish I could say the DOW profit taking was now over but if you
look at the charts of the OEX and SPX below you will see they
started selling off three days ago while the DOW was still moving
up for two of the three.
The S&P-500 (SPX) and S&P-100 (OEX) provide a better indicator
for the overall market than the Dow. With only 30 stocks and
such a high divisor a $1 move in a Dow stock amounts to a $4.60
move in the Dow average. Just a couple stocks making big moves
can distort the daily number and hide the real direction of the
However, even though the SPX and OEX have been dropping the
advance declines on Friday were not that bad. The NYSE had
1329 advances and 1662 decliners. With a -300 point drop you
would have expected a more lopsided representation. The
Nasdaq was positive with advancers leading 2085 to 1937.
The problem we face this week is the vacuum left by the lack
of earnings excitement. With over 85% of the S&P-500 already
reported the sheer volume of meaningful earnings announcements
is dwindling. Without the earnings expectations to fuel the
rise we could start to see pressure put on the market from
sellers wanting to lock in profits from the +1000 points in
April. There are a few major announcements left and many
traders will be moving into these stocks and trying to squeeze
a few more dollars out of this cycle. Dell reports on May-18th
and Cisco on May 11th. Both could still have significant runs
if the market does not correct this week.
The coming week is littered with potential economic reporting
problems. Monday has Personal Income and Spending and
Construction Spending to either fuel the inflation fire
or douse it. Wednesday has Factory Orders but Friday is the
killer with Non-farm Payrolls again.
This is retail week with many retail stores announcing
earnings and analysts are sure to see inflation fears behind
every robust announcement.
The big drop on Friday was a market-clearing move in some
respects. What I mean by this is a lot of people had their
stops hit and they were cashed out of their trades. This is
positive because they will now be looking to put this cash
back to work next week. The drop created another positive
for us. There were many stocks that got hammered hard and
the drop showed us where their support levels were. IBM
for instance tested $204 again and did not hesitate to
bounce. Many stocks we looked at this weekend retested
support levels from the big Nasdaq crash on Monday two
weeks ago. Those that held support and rebounded strong
became good plays today. REMEMBER however that they are
only good plays if the market continues flat or up. If the
market decides to correct then you need to be in cash. It
is imperative you are always market conscious and ready to
bail out for a small loss if the market moves against you.
The overall market is still positive and if we do correct
then there will be a point where the buyers will step in
and start the next up move. You need to decide now if you
want to be a buyer when that happens OR do you want to be
nursing a losing position that you held as the market fell.
Who do you think has a better chance to win? Someone in cash
or someone just wanting their position to get back to even
Have a great week!
Wait for an entry point! Sell too soon.
I do not want to relive this week over again. The great
move Friday happened after I had moved into cash and quit
trading for the day. I sold everything except my Dell when
the market appeared to peak on Friday morning. I was near
a TV with CNBC so I got to live every tick of the afternoon
drop but was no where near a PC and I could not trade it.
The week started off good with the Nasdaq up strong on
the heels of the week ending rally from last week. I
started several new plays and felt pretty good about
the positions. Then the Tuesday sell off jumped up and
bit me hard. It only went down hill from there.
The trades I started on Monday were closed with mixed results
but then the problems started. You know what is coming.
I bought the dip - too soon. On Tuesday afternoon I thought
I saw the Nasdaq flatten and even show some support and I
jumped back in with both feet hoping to hit the bottom. There
was no bottom I quickly found out. Those trades were closed
on Wednesday for a loss and I settled back and waited for the
next opportunity. I decided to be more selective and not
open more than one or two positions when the bounce came.
The brokerage stocks I had tried to trade on Mon/Tue were
moving erratically so I looked for something that was
maintaining an upward trend even though the Nasdaq was
falling. The Knight Trimark (nite) play looked to be
a perfect example.
Even though the Nasdaq had fallen, NITE had remained flat
and even showed signs of upward movement. On Wednesday
morning I bought NITE for $130 with the idea of writing
calls on it. Within an hour the price was over $140 and
the quick profit was too much to resist. NITE has a split
next week and I thought the combination of Internet stock
and split would insulate it some from the profit taking.
I kicked myself later for not buying it back again Wed.
night when the market dropped at the close but decided
to go back to the original plan and buy it the next day
and write some May calls. I waited until late afternoon
on Thursday because the Nasdaq was still falling. When
the Nasdaq appeared to firm at the end of the day I tried
to buy NITE several times but it was moving faster than
I could change the orders. I finally changed my limit
buys to a market and got filled at almost the high of the
day, $145. OUCH! Fortunately the chances for a technical
bounce on Friday were borne out and we got the big open
Friday morning. Again I saw NITE surge at the open to over
$160 and I could not pass up the quick trading profit.
I bought Dell all week long at every false bottom I saw.
I now have a larger position in Dell than I wanted but
at $40-$41 Dell is a bargain with earnings still over
two weeks away. I kicked myself all week also for not
selling my Dell-May-50 calls on Monday for $1.88 when I
had the chance. The greed factor got in the way. Knowing
this was a free position in my eyes only clouded my
judgement and I watched a very nice profit slip away to
only a minor profit. For those of you who did not read
last weeks column, I have a large number of contracts I
stole on a dip the week before for $.44 each. A $1.44
profit on a $.44 option is a home run in my book but
my target was a $2.44 sell. With earnings still over
two weeks off I kept consoling myself with every Dell
dip that it would come back with the market. THIS IS THE
WRONG IDEA. THIS IS A CLEAR ERROR IN JUDGEMENT. I preach
against this constantly but as you can see the teacher
is still human. We all rationalize our losses and
then suffer the permanent guilt from never regaining the
previous profits. Enough said. I could have bought them
back for $.75 several times.
I am not going to list how I got into and out of each trade
this week but just the summary. I want to cut this short
to respond to the many requests for "my" trading screen
setup farther down.
Calls bought and sold this week. The day is the day I
opened the position.
MON ATHM MAY-150 AHQ-EZ @ $21.00 sold $19.38 loss $ .63
MON EGRP MAY-90 QGZ-ER @ $27.88 sold $32.00 profit $ 4.13
MON AMTD MAY-110 TAZ-EB @ $31.00 sold $33.75 profit $ 2.75
MON NITE MAY-100 QTN-ET @ $30.00 sold $42.00 profit $12.00
MON CMGI MAY-300 GCB-EU @ $27.00 sold $29.00 profit $ 2.00
MON LXK MAY-110 LXK-EB @ $16.63 sold $16.13 loss $ .50
Dip buys on Tuesday (too soon!)
TUE QCOM MAY-180 AAW-EP @ $27.13 sold $26.38 loss $ .75-
TUE MFNX MAY-70 QFN-EN @ $17.00 sold $15.13 loss $1.87-
TUE EGRP MAY-110 QGZ-ET @ $26.50 sold $23.25 loss $2.75-
TUE AMTD MAY-110 TAZ-EB @ $28.69 sold $24.38 loss $4.31-
Stock bought and sold:
WED SHORT AMTD @ $127 bought @ $124.00 profit $ 3.00
WED BUY NITE @ $130 sold @ $140.00 profit $10.00
THR BUY NITE @ $145 sold @ $150.00 profit $10.00
DELL MAY-50 DLQ-EJ @ $ .44 Target price $2.44
DELL stock @ avg of $41.38
I constantly get requests for what do I look at when I am
trading. Basically I have my realtime Interquote window
open and a new program from www.Quote.com called Qcharts.
The Qcharts program has become my primary screen. The many
features and realtime charts are just incredible. There
maybe many more offerings on the net for professional
traders but this program is great for the novice or
intermediate trader. It appears to be idiot proof and
simple to learn. It is still in beta testing but any
quote.com user can still download it. It does take a
subscription to get the realtime feed.
This is how I have my screen set up. I apologize for the size
of this image but I wanted you to be able to read it. I use
a 21" monitor on my trading system and that is how this was