Less Liquidity Means More Fades

  • August 11, 2000
  • Kevin Haggerty

While
there are many who talk about the August doldrums, there
is nothing but excellent opportunity every day for daytraders on both sides of
the market. As I have mentioned in previous commentaries, the liquidity in this
nervous market is still very thin, which is great for daytrading volatility
because size is not a factor. 


When the media starts
talking about this company or that moving the market because of their earnings,
it is absurd because institutions are not sitting waiting to push a
“buy” button on all stocks because a Cisco does one penny better.
Companies can make the number whatever they want, unless things are really bad,
and you are not going to hear many analysts ringing the bell.


The S&P 500 is still in
a large symmetrical triangle, starting with the 1553 March 24 high. The upper
line is bounded by the 1505-1510 level, and the lower at about 1420, just below
the 200-day EMA of 1426. Within the framework of that triangle, there have been
no fewer than four to five excellent short-term trading opportunities.


The Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating)
hit the wall at the .618 retracement level of 4089 in conjunction with a
negative RSI divergence, and has dropped back to its 200-day EMA zone. The
mutual fund market timers will flood the sell side on another break below the
200-day EMA, in addition to breaking the 3342 low of August 3.


There will be continuing
trading opportunities on both sides, similar to yesterday, as some financials
advance, like Northern Trust
(
NTRS |
Quote |
Chart |
News |
PowerRating) and Bank Of America
(
BAC |
Quote |
Chart |
News |
PowerRating). At the
same time you had excellent shorts in Applied Materials
(
AMAT |
Quote |
Chart |
News |
PowerRating), Adobe
(
ADBE |
Quote |
Chart |
News |
PowerRating) and Sapient
(
SAPE |
Quote |
Chart |
News |
PowerRating). 


When you are in an
indecisive market, there are lots of two-way overreactions and this provides you
with high-probability fade trades. By the way, specialists and market makers are
doing great during this period.


I will be covering in
detail the various strategies to fade overreactions at the TradingMarkets2000
seminar in October. I have received many emails from traders who attended my
June seminar, telling me they are doing great by fading various extreme
overreactions, and that the first hour has become a good profit-center for them.














face=”arial, helvetica”>(September Futures)


Fair
Value

size=2>Buy

size=2>Sell


8.10


9.25

size=2>7.00


Pattern
Setups


The SOX closed below its 200-day EMA
again yesterday, so if it follows through, look for short opportunities
in: 



Advanced Micro Devices 
(
AMD |
Quote |
Chart |
News |
PowerRating), Micron Technology
(
MU |
Quote |
Chart |
News |
PowerRating), Texas
Instruments
(
TXN |
Quote |
Chart |
News |
PowerRating) and KLA-Tencor
(
KLAC |
Quote |
Chart |
News |
PowerRating).


On the long side, if they decide to
take them that way, some setups are:



BEA Systems
(
BEAS |
Quote |
Chart |
News |
PowerRating), First Data Corporation
(
FDC |
Quote |
Chart |
News |
PowerRating), IDEC Pharmaceuticals
(
IDPH |
Quote |
Chart |
News |
PowerRating), Johnson & Johnson
(
JNJ |
Quote |
Chart |
News |
PowerRating), Scientific-Atlanta
(
SFA |
Quote |
Chart |
News |
PowerRating),
Ariba
(
ARBA |
Quote |
Chart |
News |
PowerRating), Sanmina
(
SANM |
Quote |
Chart |
News |
PowerRating), Altera
(
ALTR |
Quote |
Chart |
News |
PowerRating) and Vitesse
Semiconductor
(
VTSS |
Quote |
Chart |
News |
PowerRating).


 Have a great trading
day.