Sweet Intraday Action for the Bulls

Apr 18, 2008: 9:27 PM CST

Today’s price appreciation was nothing shy of stellar for the down-trodden bulls. Let’s take a look at some of the key points:

Although price made more of a rounded top formation, the day clearly closed over 100 Dow points higher than yesterday’s close – almost all of which was a result of the day’s overnight (or morning) gap.

Gaps that don’t fill often give you play (to trade) in the direction of the gap for easy profits, and in fact, many of such days result in one-sided ‘trend-days’ where the market opens at one extreme and closes at the other. Today gave a surprising ‘twist’ (or literally, a turn) halfway through the trading day which caught trend-day traders off guard.

Because the day’s action was so interesting on a variety of intraday charts, let’s look at a handful of today’s movers:

Oops – Google’s (GOOG) intraday action was so amazing that yesterday’s intraday action literally pales in comparison to the gap. Google advanced just under $90 today (20%)! Extremely impressive, and it serves as a warning that volatility hasn’t left the market just yet.

Up next is Caterpillar (CAT):

Caterpillar Inc gives us a better picture of what a typical ‘trend day’ looks like in a common stock. Trend days often begin with a (relatively) large overnight gap and then price continues higher in a variety of waves until the close of the day. Essentially, during a known trend-day, you ‘throw a dart’ and join the trend because the expectation is that the market will close at or near its highs for the day.

Next, Citigroup (C) gave us an interesting twist on a ‘trend day’ and ‘U-Turn’ day:

The price action, with the exception of the early reaction against the gap, formed one of the clearest ’rounded top’ patterns I have seen on a chart. The two halves of the day were virtual mirror images of each other. This is one of those stocks in which you could have lost money buying near the middle of the day, as the mid-day zone carved in the intraday high (there’s little way to know that until later, which is why it’s essential to trade with stops beneath key moving averages if the situation arises).

Finally, let’s end the intraday action by viewing which sectors did the best today for potential clues about what to study over the weekend:

It may surprise you to know that – despite Google’s stellar $90 rise today – it was Industrial stocks that carved out the best sector performance (up 3%) today. Actually, Financial sector stocks outperformed Technology stocks today, as did the Consumer Discretionary sector. This might be surprising news to you if all you heard about the day’s news was Google, Google, Google.

Look deeper within these sectors to find potential stock gems to trade in the coming weeks should the market continue higher.

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