Air Pocket

October 18, 2001
Kevin Haggerty

Yesterday,
the inevitable air pocket day arrived after
the three-week tech squeeze. The NDX
(
$NDX.X |
Quote |
Chart |
News |
PowerRating) lost 6.4%, led by the
(
$SOX.X |
Quote |
Chart |
News |
PowerRating), which ended -7.4%, in addition to significant declines in other
tech indexes. There were some excellent Trap Doors yesterday which you expected
after the pre-opening future manipulation which continues to be a daytrader’s
dream and the most profitable opportunity for market makers and specialists that
fade the game.

Hope none of you paid the
40.85 high-tick in
(
QLGC |
Quote |
Chart |
News |
PowerRating) to have it close at 33.80, -17.3% from that tick.
After the Trap Door, there were two more continuation shorts in QLGC on the way
down for multi-point moves. The same thing happened in
(
NVDA |
Quote |
Chart |
News |
PowerRating), as that Trap
Door was over on the very first bar. There were also extreme volatility band
openings, like
(
AMD |
Quote |
Chart |
News |
PowerRating), which opened at 11.38, up 7.3% from the previous 10.61
close. The 1.5 volatility band was 11.35, and the 2 band was 11.60. It was
trading at $10 by 10:10 a.m., and after a very brief rally, went on to close at
9.71. No one pays much attention to a lower-priced stock that opens up 77 cents
because they don’t relate it percentage-wise. That’s why volatility bands are so
key. The WORLD would have noticed
if the Dow had opened up 7.2% at 10,058, or 676 points above the previous close
of 9383.

There were multiple Trap
Doors in many of the techs, so I’m sure most of you caught at least one, and if
not, then some of the continuation shorts as the day progressed. If you didn’t,
you should have. Explosive moves seem to always occur at key alert zones, and
that’s why I keep pounding away to make you aware.

Yesterday, the market
ended with expanded-range reversal bars on increased volume, as did many stocks.
The
(
QQQ |
Quote |
Chart |
News |
PowerRating)s opened yesterday at 35.87, above the previous 25-day high and
then closed at 32.45, which is below the previous four daily lows. The volume of
142 million was the most, up or down, since they started trading. The biggest up
day was 136 million on Oct. 3 and a good rise followed. The next biggest down
day was Sept. 19 of this year at 117 million, which was after a significant
decline. This is after an explosive rally. Beware.

The strategy for today is
to put your Trap Door hats on again and do the same thing by taking fast profits
on one-half of your position and move to breakeven on the balance. If the QQQs
open below yesterday’s low, then reverse that low to the upside if you get a
quick reflex rally to about a 50% retracement of yesterday’s range, which takes
it to the 34 – 34.25 level. If it is less than that, and then reverses
yesterday’s 32.30 low, you have a second-entry short. You can also use the
20-day EMA of 32.56 as a pivot entry point either way.Â

Go through the drill with
the
(
SPY |
Quote |
Chart |
News |
PowerRating)s and
(
DIA |
Quote |
Chart |
News |
PowerRating)s because they have the same expanded-range
outside-bar reversal pattern. The SPYs and DIAs are also right on their 20-day
EMAs. Be ready for continuation shorts in any stocks that have doubled, or near
doubled, during this rally, and that means QLGC and NVDA. If they get a reflex
up-move and you’re presented with a short entry pattern on the intraday chart,
take it. After yesterday’s reversal bars in the indexes, we have to be aware of
the downside alert zones for any test of the Sept. 21 lows. I will post those
tomorrow.

We can’t know what will
happen, but we can prepare in advance to react at alert zones on any retest of
the lows. Maybe with all that’s going on, they will try to defend and/or prop up
the averages, which will only create more near-term short opportunities. Kind of
like there’s no connection between the anthrax and terrorists. Right.

Keep your head away from
the garbage earnings dialogue and stay with the technicals. Earnings better than
estimates that have been reduced to nothing. Does that really help you? Going
forward, there will be good percentage comparisons by default.

Stocks
Today

I see it’s slightly green
as I look at the screen early on. Maybe the big squeeze institutions that
perpetuated this rally will return and try to pop it up. Or maybe the Plunge
Protection Team will be out if they start to sell off. Either way, there will be
plenty of volatility.Â

Have a good trading day.

Five-minute chart of
Wednesday’s SPX with 8-, 20-,
60- and 260-period
EMAs

Five-minute chart of
Wednesday’s NYSE TICKS

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Air Pocket

BUY THE FEAR, SELL THE GREED

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