Alert Levels Prove Profitable

September 14, 2000
Kevin Haggerty

The big
OTC stocks were
dropped quickly pre-opening in Instinet to get ready to accommodate
all the retail sell orders that had built up in the queue. If the professionals
have to buy them, it will be at a reduced price. They are mostly market orders
and when the S&P futures are selling off or Intel-type news comes out, the
discounting begins so as to take out the emotional selling at the market makers
and specialists’ price. They take the risk, so they are entitled to make the
money if the reactions are overdone, which they usually are.

The QQQs opened
on only 155,800 shares, down a point at 90 1/4, right on its 200-day EMA and the
.618 RT level of 90.84. After the retail selling carnage was over, the stocks
immediately rallied strongly. The Qs advanced 2 points to 92 1/4 by 9:45 a.m.
and to 93 before 10:30 a.m. That was a quick 3% move in one hour, thank you very
much! After making a .50 RT level
by 11:45 a.m., the Qs traded back up to an intraday high of 93 3/4, for a 2.5%
gain on the day and +3.9% from the 90 1/4 opening and low.Â

There was a definite
institutional and program agenda late in the day, as a block of 2.5 million
shares traded at 93 7/16 at 3:40 p.m. and another block of 1 million shares
traded at 93 5/8, both done in the third market.

The Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating)
traded down to a 3611 low, just above its 200-day EMA which today is 3607.93.
The intraday high was 3752.45, which is the .50 RT level. The 260-EMA going out
last night is 3750 which, of course, becomes your inflection point today. The
equivalent number for the NDX 100 proxies, the Qs, is a 260-EMA of 93.50 vs. a
93 7/16 close. The NDX closed at 3742.

On the other hand, the
S&P 500 hit an intraday low of 1473.59 right at its .50 RT level
which is 1472: What followed was, you guessed it, an immediate bounce off that
RT level up to 1487.45. It retested the low, then traded back up to 1487.40,
before closing at 1484.90, +2.9 points for the day. The 260-EMA is 1487.25, so
that becomes your inflection point if it trades through that and its intraday
high of 1487.45. The S&P 500 recrossed the 50-day EMA, closed in the top of
its range, and reversed the prior close. For you candles, it gave you the long tail
at a key inflection point.

This is an eight-bar
pullback, setting up with a convergence of the 50-day EMA and a .50 RT level.
You take the trade above the high and use just below the 50-day EMA as your stop
level. It is a good risk/reward, even if you end up with second entry because of
early noise. The NDX 100 is the
same eight-bar pullback, except converging with the .618 RT level and a 200-day
EMA.Â

Every day, you should
understand where the key inflection points are and that obviously includes the
previous day’s high, low, close and also the closing range which you should be
aware of in conjunction with the following
day’s opening.

Net, Net, yesterday’s
volume increased to 1.068 billion, institutional blocks jumped to 23,374 and at
the same time the breadth was negative and the volume ratio below 50 at 48. That
indicates program expiration activity in addition to putting some money to work
in the tech selloff. You can’t
know who is driving the bus in many of these stocks, but the volatility is
outstanding for trading as long as you keep tight stops and are ready to
re-enter a trade as the games unfold.

face=”arial, helvetica”>(December Futures)
Fair Value	size=2>Buy	size=2>Sell
23.00	24.30	21.60

Pattern
Setups

1. Retracement of some of yesterday’s
range and then a setup.

2. Continuation entry if the games continue and probably a second-entry setup
after the market makers shake the tree and scare those that carried longs
overnight. If you get a continuation entry early, play with no more than half
your normal position size.

Have a good trading day.

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Alert Levels Prove Profitable

BUY THE FEAR, SELL THE GREED

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