PLEASE SEE IMPORTANT LEGAL DISCLAIMER ON LAST PAGE

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1 Today s Overview The new week began with a choppy session that printed spinning top candles on the index futures. We did hold on to higher highs, so last week s short-term breakout is still intact. Momentum traders were itchy this morning, and their lack of patience cost them a few bucks. But market breadth stayed positive all day, and there were a number of good moves scattered around the market landscape. I don t have too many wise words at this juncture. The rally is getting long in the tooth, but nothing has happened yet to warn traders that the market is about to change gears. In today s RealMoney column, I offered my theory about why I think the rally still has a few more points to go. I bought AES (AES:NYSE) on the intraday triangle breakout. I bought Primus Telecom (PRTL:Nasdaq) just above Friday s high. I started a ChipPAC (CHPC:Nasdaq) position on the late pullback. I also picked up Electronics Boutique (ELBO:Nasdaq), which bounced out of retracement support. I scratched positions on Keane (KEA:NYSE), Chicago Bridge & Iron (CBI:NYSE) and Hewlett-Packard (HPQ:NYSE). Thought for the day: I m opening a currency account just to try out something a little different. If you think the stock market plays dirty pool, you won t believe the shell games that forex brokers play with their clientele. It s like the Wild West with the sheriff nowhere in sight. (See Watch List on next page) PLEASE SEE IMPORTANT LEGAL DISCLAIMER ON LAST PAGE

2 Watch List Trident Microsystems (TRID:Nasdaq) rallied strongly out of the bull flag. (long - 1/16/04) Primus Telecom (PRTL:Nasdaq) rallied out of the coiled spring after an early fake-out. (long - 1/16/04) Keane (KEA:NYSE) tested the breakout gap and closed in a bull hammer. (long - 1/15/04) Advent Software (ADVS:Nasdaq) is still moving sideways after an early pullback. (long - 01/13/04) Electronics Boutique (ELBO:Nasdaq) rallied out of retracement support. (long - 01/13/04) Akamai Technologies (AKAM:Nasdaq) is moving sideways at the high. (long - 1/12/04) ImClone (IMCL:Nasdaq) stalled after hitting a higher high. (long - 1/12/04) Time Warner Telecom (TWTC:Nasdaq) rallied to a new high after an early pullback. (long - 1/09/04) Foundry (FDRY:Nasdaq) rallied to a new high after an early pullback. (long - 1/07/04) ChipPAC (CHPC:Nasdaq) rallied back to the seven-day high. (long - 01/06/04) St. Jude Medical (STJ:NYSE) rallied to a new high. (long - 01/06/04) ATI Technologies (ATYT:Nasdaq) rallied to a new high but closed poorly. (long - 01/06/04) Sapient (SAPE:Nasdaq) rallied to a new high. (long - 01/06/04) Chicago Bridge & Iron (CBI:NYSE) pulled back to channel support but closed poorly. (long - 1/05/04) Hewlett-Packard (HPQ:NYSE) is pulling back to test the gap between and 25. (long - 1/05/04) AES (AES:NYSE) rallied to a new high. (long - 1/05/04) Citigroup (C:NYSE) still looks weak after earnings, so I m removing it at this time. Removing ON Semiconductor (ONNN:Nasdaq) and decode Genetics (DCGN:Nasdaq), which are both approaching reward targets. Tighten trailing stops and take profits on a rally into the post-9/11 highs. Also removing Tripath Technology (TRPH:Nasdaq) because the pattern has lost its edge. 2

3 ay s Close: [Up.86] CombiMatrix (CBMX:Nasdaq) Today s Close: $6.15 up $0.38 CombiMatrix (CBMX:Nasdaq) is a nanotechnology play that s doubled in price since the start of January. The stock reached 6.14 on heavy volume last week and began to pull back. CBMX is printing a seven-day ascending triangle that looks close to completion. A breakout here could trigger a quick move to 9. This is a continuation long setup. Buy the breakout or within narrow range at resistance. The stock is currently trading at an all-time high. It printed a NR7 in today s session and could break out at any time. It has also formed a small-scale cup and handle on the 15- minute chart that s bullish for an impending move. This is a volatile stock, so watch your position size and keep a trailing stop loss under your position. The company has no scheduled earnings releases in the near future. (See second chart on next page) 3

4 CombiMatrix 4

5 The Daily Swing Trade is intended to provide technical analysis and opinions about stocks and markets. Alan welcomes your questions about The Daily Swing Trade and his swing trading strategy and techniques. Please Alan with your questions at However, please remember that The Daily Swing Trade is not intended to provide personalized investment advice. DO NOT ALAN SEEKING PERSONALIZED INVESTMENT ADVICE, WHICH HE CANNOT PROVIDE. Question: How do you measure market breadth, and what other indicators do you use to gauge the strength and staying power of an intraday move? Alan Farley: I follow the NYSE and Nasdaq advance/decline data. They re real basic market breadth indicators that get easier to read after looking at them for a decade or more. I wish there was a simpler answer on intraday strength and weakness. For me, it s the index futures more than anything else. So many stocks mimic the futures price action. I also watch the NYSE TICK to gauge buying and selling intensity. A lot of the perception of strength or weakness actually comes from understanding the psychological components facing the trading crowd each day. You get a feel for when traders are leaning too far in one direction or the other. This tells you when a trap is probably being set and when a reversal is ripe. Of course, you need to separate yourself from those intense emotions to see them on the ticker tape. For example, take a premarket session like today. Early-bird traders were jumping all over the upticks when they saw the index futures sitting a few points above Friday s close. I had no interest in buying above the market this morning because their intensity seemed very ill-timed to me. The opening turned out to be a trap and the high for the day. Question: Do you use different Stochastics settings on daily and intraday charts? Alan Farley: A while back I used a Stochastics setting for my daily charts but got so hooked on the setting for my intraday charts that I use that for everything now. The trick with Stochastics is twofold: First, forget the crossovers because they re worthless. Instead, learn to read the patterns that the indicator prints over time. Second, Stochastics reflects the underlying buy/sell cycles in the market. I would have 10 thumbs in my trading if I didn t use this oscillation to synchronize the timing of my positions. Stochastics can be used for all market conditions, as long as you focus on it as a pattern tool. It places the opportunity and advantage toward the bull or bear side at any point in time. It works with swing cycles that are part of market folklore. I consider this indicator to be a continuous feedback mechanism that gives messages all the time. It s just that not all of them are tradable. During those times when the market is real noisy, the indicator becomes an oscillation mechanism, rather than a price prediction tool. (Continued on the next page) 5

6 Question: I don't understand the concept of a holding period. How do I know how long it's going to take to move from support to resistance? It could take two days or two weeks. As long as it gets there without breaking the trade setup, what effect will the holding period have? Alan Farley: You'll find the market works in cyclical lengths. Holding period tries to match a trader's time in the market with those underlying cycles. The problem with just seeking a price target and not being concerned about how long the trade is held is that movement takes on trend and countertrend properties. If your "market timing" is bad, you'll catch the countertrend move and throw yourself into a big loss. The point of a holding period is to isolate the supportive trend of the chart you're using to make the trade. Of interest is that your comment assumes that markets trend all the time. This isn t correct. In fact, they only trend about 15% to 20% of the time. The rest of the time they are chaotic, and very dangerous if you intend to sit around and wait for a price target to get hit. 6

7 Guidelines and Frequently Asked Questions For guidelines about the best way to use The Daily Swing Trade and for answers to the questions readers ask most often, a guide, "Your Questions Answered About Swing Trading," has been created. To obtain a copy: RealMoney subscribers can click: Other Daily Swing Trade subscribers can get a copy by contacting Customer Service by ing [email protected], or by calling , Monday Friday 8 a.m. to 6 p.m. ET. 7

8 Contact Info Customer Service: Please or call Mon. Fri. 8 a.m. to 6 p.m. ET Reader Feedback and Questions: Please Alan directly at [email protected]. Again, please direct all account-related inquiries to customer service. Legal Information This information is confidential and is intended only for the authorized Subscriber. Please notify us if you have received this document in error by telephoning Alan Farley is a freelance writer and a contributor to RealMoney.com, the premium subscription site of TheStreet.com. Mr. Farley s past results are not necessarily indicative of future performance. TheStreet.com is a publisher, and neither we nor Mr. Farley is registered as a securities broker-dealer or an investment adviser either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. At the time of publication, Mr. Farley will not have a position in any security which he discusses in The Daily Swing Trade. HOWEVER, MR.FARLEY MAY ENTER ORDERS TO PURCHASE OR SELL SECURITIES MENTIONED IN THE DAILY SWING TRADE AFTER 10:30 A.M. ON THE TRADING DAY FOLLOWING THE DATE ON WHICH THE SECURITY IS MENTIONED IN THE DAILY SWING TRADE. IF YOU ENTER ORDERS TO BUY OR SELL SECURITIES AFTER 10:30 A.M. EST, IT IS POSSIBLE THAT MR. FARLEY MAY HAVE PURCHASED OR SOLD THE SECURITY AT A PRICE MORE ADVANTAGEOUS THAN THE PRICE YOU WILL OBTAIN. The Daily Swing Trade contains Mr. Farley s own opinions and is provided for informational purposes only. You should not rely solely upon The Daily Swing Trade for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. Mr. Farley cannot and does not assess, verify or guarantee the suitability or profitability of any particular investment. The Daily Swing Trade should not be construed as an offer or solicitation of an offer to sell or buy any security. Subscriber shall keep confidential, and use for internal purposes only, the information contained in The Daily Swing Trade. Subscriber may not copy, redistribute, disclose, furnish or sell The Daily Swing Trade or any information contained therein to any third party without the express written consent of TheStreet.com. 8