The Perfect Storm

December 21, 2000
Goran Yordanoff

Iâ€™m
incredibly excited to join the TradingMarkets.com team.
To have my commentary included amongst names like Cooper, Haggerty and
Landry is truly an honor.Â

Now letâ€™s get to
work.

You have to sit back
and marvel at the ability of the institutional futures traders to effortlessly
whipsaw the market around like George Clooneyâ€™s fishing boat.
After the Nasdaq Composite plunged through 2300 like an Acapulco cliff
diver, fear was in the air.

However, after
momentarily taking out yesterdayâ€™s low in the Nasdaq futures and the Nasdaq
composite, we witnessed an impressive multi-hour rally.
The eagerness of some traders to proclaim a bottom may be an emotional
temptation that we should avoid at all costs. Today,
at around 11:00 EST, many traders I know were starting to take longs based on
the positive Nasdaq futures activity at the time.
With the potential for further margin selling surfacing later in the
morning or early afternoon, I wasnâ€™t willing to lock and load quite yet.
It was clear soon thereafter that the market was permeated with rumors of
an FOMC intra-quarter rate cut. This got
me thinking that maybe the Easter Bunny would come early this year, too.
The moral: donâ€™t buy or sell a
rumor.

Some traders are so
intent on not missing the short-term bottoms, they are willing to stick their
necks out in anticipation rather than waiting for price action to confirm.Â

The inability of the
Nasdaq futures to close yesterdayâ€™s opening gap down during its mid-morning
rally today signaled to me that some consolidation would be necessary
for a possible assault later in the day. However, the Bears clearly took
the upper hand later in the afternoon when we saw the Nasdaq futures collapse
out of their mid-day consolidation range. Letâ€™s
look at the intraday 15-minute chart of the Nasdaq futures:

Observing the
breakdown of the Nasdaq futures early this afternoon gave us some great short
trades in the “futures sensitive” issues like JNPR, BRCM, BRCD and
PMCS.

Once this gap area
(a) of 2410 is exceeded, I will look for momentum long entries on the Nasdaq
â€œchosen ones,â€ as Haggerty calls them.Â
Until then, Iâ€™ll trade â€˜em like I see â€˜em.

When the end of this
Nasdaq bear comes, it probably wonâ€™t be a simple â€œVâ€ bottom as most have
gotten used to seeing. Frank Cappiello,
president of McCullough, Andrews and Cappiello in
Baltimore and a 30-year market veteran, said this morning:Â
â€œThe feeling is the economyâ€™s falling off a cliffâ€¦This is about the
most severe market Iâ€™ve seen. Weâ€™re facing terror, fear.â€Â
Statements like this donâ€™t exactly make me want to take positional
longs here, but it could be a useful statement concerning the extreme negative
market sentiment that has been surfacing the past few sessions.

At this stage of the
game, we havenâ€™t had three straight up days since Labor Day.Â
With the possibility of further tax loss selling looming over us, Iâ€™m
not committing to any long positions yet.Â
A month ago, I heard an analyst say that â€œif
the Bears get Thanksgiving, then the Bulls get Christmas.â€Â
How clever. Iâ€™m waitingâ€¦

For trades, Iâ€™m
watching the following for entry setups:

Be on the lookout
for more meaningful setups when the market paints a clearer picture for us. Keep
an eye on the Philly Semiconductor Index (SOX) and the Biotech Holders Trust (BBH),
as potential leadership would need to materialize from either place for the
Nasdaq Composite to generate some excitement.

Random Musings:

Wasnâ€™t it
interesting that Mr. Janikowski, the CEO of PALM, wasnâ€™t wearing his 24karat-gold
pinstriped suit today that he sported shamelessly on the day of their IPO?

The Perfect Storm

BUY THE FEAR, SELL THE GREED

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