Reaction Day On Reduced Liquidity

October 9, 2000
Kevin Haggerty

Because of the
wide-range-bar down spikes, you should take entry if it trades above that high
on an intraday basis with tight stops and decide whether to keep the position,
if it is confirmed by a close above that high. It is a very good entry
discipline to wait for a change-in-direction bar that establishes a swingpoint
low.Â

I’m sure it didn’t feel
like you should have taken the entry in the last RST sell pattern below 4057.44,
which was the low of the swingpoint high at 4147. I am sure you wish you had
taken it now. Everyone is waiting
to take what they think is a solid entry above that 4147 swingpoint high and
hopefully it is, but as I see it, that
should end up being your fourth entry after the RST buy, a recross of the 200,
and then a recross of the 50.

If you enter at the lowest
common denominator, and then scale some more buys into strength, you won’t end
up holding the bag at 4147, and you might even scale some sells into the obvious
entry. I will alert you all when
the RST pattern is confirmed.Â

Right now, after Friday’s
washout with the NDX 100 extending its low to 3262.80 and the SPX at new minor
lows, the last thing you are thinking about is long. Review
your 10/3 commentary for the alert levels. We are just above the 3165 .786
level, framing from the 10/99 low, and not far above the .50 RT level of 2940,
framed from 10/98. The .618
retracement zone from that timeframe is 2500. Do you have a long position plan
yet?

The
(
QQQ |
Quote |
Chart |
News |
PowerRating)s are at the
volume levels where there have been some sharp reversals. The 83.27 low on 10/3
was on volume of 35.7 million; the 10/4 low of 82.13 on 37.7 million; and
Friday’s low of 81.25 on 36.3 million. Check
your daily charts on the QQQs and you will get the drift.

On Friday, the Nasdaq
Composite had a negative-volume to positive-volume ratio of 4 1/2 to 1, the
worst since the last big down. The S&P 500 index stocks were 3 to 1 negative
to positive. The NDX 100 declined 3.3%, led by the Internets, and the S&P
500 was off 1.9%. The techs, financials, biotechs and cyclicals all moved the
same way — down. The only real plus was the utilities, the UTY index, which
ended the day +1.6%. Not a surprise on a fear day.

The bond market and banks
are closed today and many of the professionals took long weekends. That always
means for those that are left is to guard the fort, not to get into position
trouble and just go with the order flow. Translated,
it means less liquidity and potential for some very sharp moves.

If we should continue with
Friday’s selloff, the one-day volatility bands on the downside for the S&P
500 are 68% 1394; 80% 1390; 87% 1387 and 95% or two standard deviations, is
1380. If you are unfamiliar with this, you can get the information from my
lesson on the site. There will
probably be a good reflex intraday rally from one of these bands, so you must be
alert to your intraday charts for reversal-bar entries and the market dynamics
at the time.

face=”arial, helvetica”>(December Futures)
Fair Value	size=2>Buy	size=2>Sell
16.10	17.40	14.80

Pattern
Setups

After Friday’s down, there are not
many great long setups, but the following stocks bucked Friday’s down and might
see some buyers return:Â

Have a good trading day.

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Reaction Day On Reduced Liquidity

BUY THE FEAR, SELL THE GREED

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