Whiplash

The most interesting thing our office noticed today was the clear outperformance by the S&P 500 Index (SPX) versus the Nasdaq 100 (NDX). As you see in the two five-minute charts of the indexes below, the SPX made two higher lows while the NDX made two lower lows.

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Lows in the SPX coincided with key support in the S&P 500 futures (SPU1) as seen in the chart below. 

Various plays set up beautifully with this buy divergence, including (SPY | Quote | Chart | News | PowerRating), (IBM | Quote | Chart | News | PowerRating), (PEP | Quote | Chart | News | PowerRating) (which also had a beautiful Morning Star formation on the daily chart), among others. Remember to scan through charts of the stocks that make up major indexes and look for weakness or strength in each chart. Having this list prepared helps you zoom in on the right stocks to trade once you notice key buy or sell signals like the one we noticed today. Trading the baskets are obviously some of the best ways to play (QQQ, SPY, DIA, SMH, etc.) but many stocks offer more volatility/movement, which equals potentially larger reward. Identify your style and you'll know what to trade.

Following are charts on two stocks that our office is currently monitoring:

Also, don't lose sight of the Retailers!  From the message boards and the Traderswire it looks like many of you followed my (BBY | Quote | Chart | News | PowerRating) as well as my Retail Index ($RLX | Quote | Chart | News | PowerRating) short call from last week. We got a great return on these shorts and are getting ready for repeat plays.  As you know from charts of the RLX from my previous commentaries, key resistance lies between 900 and 915. The "tax refund" hype is going to be a great fade. This will be a short-lived phenomena, since the fundamentals of these companies continue to disintegrate in a weakening economy. Stocks to watch on any moves up into resistance are:  (BBY | Quote | Chart | News | PowerRating), (BBBY | Quote | Chart | News | PowerRating), (HD | Quote | Chart | News | PowerRating), (LOW | Quote | Chart | News | PowerRating), (WMT | Quote | Chart | News | PowerRating).

Here's a quote from a news story Wednesday:  "Wal-Mart Stores plans to cash rebate checks for customers at its stores to make them easier to spend, while Home Depot is taking an even more active approach.  "Why wait on your tax rebate check?  Shop Online Now!" implores the company's web site."  As Goran would say: "Get ready to Lock and Load."

Happy Trading!

Carolyn

Sidenote One:  I'm not going to be trading too actively over the next couple of days. We've had some great plays come to fruition for us this week, and it's time to relax and rejuvenate for a few days. (Note: I didn't say I wouldn't be trading at ALL, just not as much - it's nearly impossible for this office to sit on our hands)  We're also leaving on Friday morning for my brother's 25th wedding anniversary celebration. Quite an achievement in this day and age and, with your permission, I'd like to tell Fred and Marianne CONGRATULATIONS!!!  Given their plans for the 25th, I can't wait to see what they'll do for their 50th!

Sidenote Two: Continuing saga of "How Many Times Can We Push the Envelope With Reiterations of Strong Buy Ratings"........... CSFB came out today and once again reiterated their Strong Buy on (THQI | Quote | Chart | News | PowerRating) after the stock had shed nearly 27% of it's value in three sessions.  I believe that's number six by CSFB - you can bet your PlayStation II consoles that CSFB has drummed up some serious investment banking with this company, among others in the gaming sector. Would anyone care for a secondary?

Copy-editor's note: Because Carolyn's charts contain important explanatory text, they tend to be wider than other charts on the site; this also affects the commentary width. You will find this to be the case with Goran's commentary as well. Making the charts narrower would make the explanations more difficult to read, and because of this I have elected to keep the chart size as-is.