Sam Collins

Calling All Traders

by Sam Collins   11/19/08

Another dizzying day on Wall Street ended Tuesday with a rally instead of a sell-off, and, lately, that's an oddity.

The strength was attributed to Fed Chief Ben Bernanke and Treasury Secretary Hank Paulson's testimony before the Senate, better earnings for several stocks and growing support for a bailout of the "Big Three" auto makers.

Positive economic news in the form of lower inflation started trading off on the right foot. The October Producer Price Index (PPI) fell 2.8%, due mostly to the sharp decline in energy prices. But core PPI, which excludes food and energy, rose 0.4% and (while larger than expected) was all but ignored by the market.

Also before the opening Home Depot (HD) topped earnings estimates and so did Hewlett-Packard (HPQ). HP even said that 2009 earnings would be higher than previously forecasted.

Yahoo (YHOO) announced that founder Jerry Yang will step down as CEO, and that led to speculation that Microsoft (MSFT) may renew its interest in acquiring the company.

The wild day of trading -- with the S&P 500 (SPX) rising 1.8% by mid-day, falling to a loss of 2.8% by 3 p.m. Eastern and then rallying back to close to the day's highs -- left the Dow Jones Industrial Average (DJI) at 8,425, up 151 points, the S&P 500 gaining eight points and closing at 859, and the Nasdaq (NASD) at 1,483, up a point.

Volume on the New York Stock Exchange was nearly 1.6 billion shares and on the Nasdaq, more than 1 billion shares traded. Breadth was positive on the NYSE at 2-to-1 but the Nasdaq was a negative 4-to-3.

The December crude oil contract fell 56 cents to $54.39 a barrel and the Amex Energy SPDR (XLE) gained $1.31 to close at $48.09. Gold for December delivery fell $9.30 to $732.70, and the PHLX Gold/Silver Index (XAU) closed at $75.72, down 58 cents.

What the Markets Are Saying

This is a traders' buy now signal.

The major averages have been hovering just above their lows for several days, as traders nervously probed both sides in an attempt to discern the next move. But Tuesday's final hour may have tipped us off that the bulls are ready to take charge and drive prices back to the initial resistance at the Dow's (DJI) 20-day moving average at 8,797, then to the 50-day moving average and then to the top at 9,300- 9,625.

The tip-off is our own internal indicator, the Collins Bollinger Reversal (CBR).

Yesterday, both the Dow and the S&P 500 flashed buy signals for the third time since October, and the second in a week. The Nasdaq gave us buy signals for the second time in three days -- and Thursday was a key reversal day.

Yesterday volume increased with the signals and now the internal indicators are all in oversold territory. As for the sentiment indicators: Only the CBOE Volatility Index (VIX) was being troublesome but yesterday it, too, eased off by falling 1.51 to 67.64 after running to an intraday high of 73.13. This is also options expiration week -- a week that is usually strong, especially following a week in which stocks failed to perform well.

For traders, it is time to go long for a short-term trade with targets at Dow 9,300-9,625, while long-termers may want to pick up an underpriced blue chip like our Trade of the Day, Caterpillar (CAT), for portfolio positioning.

But caution: A close under the current lows of each index would negate this signal and probably trigger a new leg down.

Today's Trading Landscape

Earnings to be reported include: BJ's Wholesale Club (BJ), Cyberonics (CYBX), Dress Barn (DBRN), Intuit (INTU), LDK Solar Co Ltd (LDK), Mens Wearhouse (MW), Mentor Graphics (MENT), Noah Education Holding Ltd (NED), PetSmart (PETM), Planar Systems (PLNR), Ross Stores (ROST), Semtech (SMTC), Stillwater Mining Co (SWC) and Trina Solar Ltd. (TSL).

The following economic reports are due: September Consumer Price Index (the consensus expects negative 0.6%), September CPI excluding food and energy (the consensus expects 0.2%), September housing starts (the consensus expects a loss of 2.7%), the Nov. 14 U.S. Energy Dept. Oil Inventories, the Nov. 14 API Oil Industry Report and the October Federal Open Market Committee (FOMC) Minutes.

---

Get Sam Collins' Daily Trader's Alert e-mailed straight to your inbox each morning before the opening bell absolutely FREE!

In addition to getting instant access to his Daily Market Outlook, you'll also receive, in the same e-mail, his Trade of the Day so you can start your day off right by positioning yourself for profits!

Click here today to sign up today for Sam's FREE Daily Trader's Alert!

Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.