Both Ways In The Chosen Ones

October 3, 2000
Kevin Haggerty

The
S&P 500 had a quick 9 points down from 10:00 a.m. – 10:15 a.m.,
rallied 11 points into the noon hour and then trended down until about 3:00 p.m.
to an intraday low of 1429.85 before clean-up buying closed the index at
1436.25. The semis rallied early, but failed, except for
(
TXN |
Quote |
Chart |
News |
PowerRating) which closed
up 2 5/8 points or 5.5%. The brokerage stocks, with the exception of
(
MWD |
Quote |
Chart |
News |
PowerRating)
had a pop, but your week was made with the shorts and the chosen ones, which had
a rough day.Â

As I mentioned yesterday,
you have the deal-fever brokerage stocks holding in and the chosen ones which
will probably endure some more pain before a decent rally ensues. You have to
take a look at some of these stocks and where they have come from and in what
timeframe. For example, AMCC was at 65 1/2 in April of this year, and that was
down from 159 at the end of March! In the past five months, it has rallied from
65 1/2 to 219 1/2 last Friday. That’s almost a three-and-a-half bagger in five
months, let alone three years. Sooner
or later, they have to ring the register and that attracts more people to the
exits. There won’t be any market makers getting in the way on the downside, nor
should there be, but when they smell blood, you can bet the downside will be
accelerated.Â

AMCC closed yesterday at
191 13/16, so let’s take a look at possible downside levels if the selloff
continues. The 10-week MA is around 183, the 30-week down at 146, so there is
some more room. The drop from 160 to 65 1/2 took it well below its 30-week MA at
the time. The Fib RT levels from the 65 1/2 low to the recent high are
approximately 161, 142, the .618 RT at 124 and then 98. You should pick about 10
of the most extended chosen ones and frame them on the weekly charts so you have
some reference levels. You then
look for your setups on the daily and intraday charts. As these stocks work
lower, there will be some sharp rallies, therefore providing daytraders with
excellent two-way action.Â

Looking at the NDX 100 from
the 1063 October 1998 low to the
4816 high and framing the levels, you get a .50 RT of 2940 and a .618 at about
2500. The next convergence comes
at about the 2200 level. Let’s hope not! Looking
at it another way from the October 1999 low of 2300 to the 4816 high, you can
see that the 2897 May low retraced about .786 of that move and
rallied to 4147, which is the .618 zone. If
the 2897 low holds, look for potential bottoms at the 3375 level and the 3165
level. If this scenario plays out, the NDX 100 could rally to the 4400-4600
zone, which would be about a 38% rally, depending at which level it started
from.Â

That rally could coincide
with the November-through-April stronger seasonal tendency and the election.
Also, below 3342 on the NDX, a 7
swingpoint RST buy pattern will set up and the same for the S&P 500 below
1413.90. I will alert you all if
and when they set up. By completing this exercise, you have some inflection
points to watch closely for any change in trend and will be prepared to take
action and not be surprised or get mesmerized by the media and empty chatter on
the talk shows.

face=”arial, helvetica”>(December Futures)
Fair Value	size=2>Buy	size=2>Sell
17.60	18.90	16.45

Pattern
Setups

Have a good trading day.

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Both Ways In The Chosen Ones

BUY THE FEAR, SELL THE GREED

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