Alert Zone Ahead

November 14, 2001
Kevin Haggerty

We got in early on this
rally for the major indexes, and also the semis, at a key alert zone and a major
cycle period while most were telling you not to pick bottoms, follow the trend,
etc. Okay, I give up. When does the trend start? You get nothing but a hedged
answer from these empty suits. Now that it is looking good to them, I say it is
time to either hedge most of your long profits, or take money off the table
selling into this move. You will get another chance to buy on a pullback, which
might be higher, or else a retest of the 945 low on the SPX. Hopefully, it’s
only to the .38 level, which means we’re on the verge of a real strong market.

If you prefer to stay
long, then you could buy some LEAP puts with some of your gains, or else take
your money off the table and buy LEAP calls. Take a look at your weekly chart
for the SPX, and you’ll see that this is the fourth rally back to a declining
30-week moving average. The highest probability is that the SPX will pull back
from this 30-week zone. The 30-week moving average is 1152; the 144-day EMA is
1156; the 233-day EMA is 1200, while the .618 retracement to the May high is
1174. The SPX closed at 1139, just 1.1% below the 30-week moving average. I say
this is a zone that you must be aware of.

The SPX could trade
through the 30-week MA slightly, as it did the previous three rallies, and then
pull back. If you’re not educated in the use of options, then don’t be reluctant
to take profits into this zone on the SPX and related.Â

The no-brainer in
yesterday’s SMH volatility band trade which I taught at two seminars was as
follows: There was a big early green in the futures, and the OTC semis were also
green early. When you see this, you put an order in to short the SMHs at the 1.5
volatility band or better on the opening. Limit orders have no standing on the
opening, but if it opens above your limit, then you get elected. The 1.5 band
was 43.58; the 2 band was 44.23. The SMHs opened at 44, +5.8% from the previous
day’s close of 41.60. They traded down to 42.60 by 10:00 a.m., and the 44
opening was the high of the day. Once again, the specialists made the most
money, but those of you who have learned how to play their game had great
trades. If you don’t get executed on the opening, you cancel the order, then
follow your normal volatility band strategy.Â

Stocks
Today

The semis only had five
stocks that traded 100% or more of their average volume, and eight of the majors
that traded 85% or less. They look like they got a little tired yesterday. If
there are any gap openings today, look for you first intraday short setups for a
contra move in any of these sectors.

Have a good trading day.
I’ll be back on Monday. I’ll be out of town on business on Thursday and Friday.
See you Monday.

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

Five-minute chart of
Tuesday’s NYSE TICKS

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Alert Zone Ahead

BUY THE FEAR, SELL THE GREED

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