Trade Recommendation for November 18th, 2002

Buy SPY on a pullback to $90.00
The stock market has been ignoring some bad news lately. Even with multiple downgrades to several key tech stocks on Friday, the Nasdaq finished almost at its highs and unchanged on the day, while the S&P 500 closed a fraction off its daily highs. Volume was decent as well, although not as high as on the day it reversed higher off trend line support last week. Momentum confirmed the high reached on November 6th, but does not appear overbought as of yet. Overall, the trend is moderately bullish short-term, but bearish in the longer-term. The market is moderately overextended on an intraday basis, and though we might open stronger on Monday morning, I would not chase the market here.

Everybody likes a bargain, but when trading the markets, all that counts is whether a trade's risk/reward makes sense. Right now, I like the idea of purchasing the S&P 500 SPDRs (SPY, $91.40) on a pullback. Although my longer-term outlook remains negative on the stock market, equities have done an excellent job of ignoring bad news of late. Ultimately, the bad news should weigh on the markets, but the chart pattern suggests that SPY has a good shot of making a new near-term high (or at least challenging its peak set on November 6th following the Fed's 50-basis-point rate cut).

However, chasing a market can be dangerous if you do not understand the risks involved. Friday's Candlestick can be considered bearish and volume was rather low despite the good gains on bad news. I do not see a bearish outcome right now, but do expect a pullback on Monday or Tuesday. I would purchase SPY at $90.00, as long as prices do not rally to $92.22 or higher first, and I'm looking for a run back to the old high at $93.07 (set on November 6th). You should always have an exit strategy in place in case you are wrong, so for this position I'm going to put in a stop loss at $89.04, or just below the November 13th close.

RECOMMENDATION:  Buy SPY on a dip to $90.00 as long as it does not reach $92.22 or higher first.
STOP LOSS:  $89.04
INITIAL TARGET:  $93.07

Keep An Eye Out:
I am not ready for a trade recommendation yet, but the Oil Service HOLDRs (OIH, $55.30) are looking toppish.  A head and shoulders might be forming here. I will be watching this closely for a possible signal.  If we get it, then losses of 10% or more from our signal area will be likely!  Stay tuned for further updates.

Good investing!

Steven Poser
Editor
The ETF Authority

  
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