Anticipate Trap Doors And Volatility Bands

June 26, 2001
Kevin Haggerty

The S&P 500
(
SPX |
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Dow -0.9% and the Nasdaq 100
(
NDX |
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its average at 1.028 billion with a volume ratio of 33 and 348 decliners over
advancers. On the plus side, the Nasdaq volume was much lighter at 1.47 billion,
while only 78% of its average volume. The volume ratio was positive at 62, led
by some semis, networkers and scattered computer stocks.

The SOX (+2.7%) and IIX
(+2.7%) led the good guys while the BKX ended -1.4%, but it has advanced
8% in five days in front of the FOMC anticipation. The retailers, basics, drugs
and biotechs all finished red, led by the BTK (-3.3%) and RLX
(-2.3%). The biotechs, as evidenced by the BBHs, which are the biotech HOLDRs,
had advanced 56% from the 3/22 low with hardly any pullback, but right now we
are on the brink of a larger
retracement.

As you know, most of the
individual biotech stocks we have been in had runs of 100%+ and the
(
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flap was enough of a catalyst to rush to the exits, taking money off the table.
The BBHs closed at 130.55, just below its 50-day EMA of 131.14, and also below
all of its EMAs. A 1,2,3 short
entry sets up below 126.75, which is swingpoint #2 and is also the neckline for
a classical head-and-shoulders pattern.Â

The range for the past ten
days is 139 – 126.75, so we can also also use the 50-day EMA of 131.14 as a
pivot for either a quick rally here and then possible early entry on the short
side. The Fibs are:

.38Â Â at 124.86

.50Â Â at 118.60

.618 at 112.44

.786 at 103.68

The recent bounce off the
50-day EMA was on increasing and significant volume. If
you are looking at the BTK, you see 570.89 as the swingpoint #2 and
head-and-shoulders neckline. The
index closed at 581.05, just above its 100-day EMA of 577 and 200-day EMA of
579.15, so you have some nearby
inflection points to work off of.Â I
belabored this outline because this sector provides so much volatility and many
intraday and short-term pops — similar to yesterday’s good short entries in
(
CRA |
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PowerRating),
(
IDPH |
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(
PDLI |
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PowerRating).Â

I am liking the early red I
see with the S&Ps -13 and NDX futures -42 as I compile this at 7:30 a.m. ET.
My number one hope is for them to take out the 1203 low on the SPX and flash it
down to the 1170-1180 zone, where we can get a stronger rally into the report
card six months ending in June and into early July.

(September
Futures)

Fair Value

Buy

Sell

7.75

Â 9.05 Â

Â 6.50Â Â

Stocks
Today

We start out anticipating
Trap Doors and Volatility Band trades, certainly not continuation entries above
the previous day’s high. We will
pencil in some continuation shorts but it will be a surprise to get any
trade-through entry on the first try. (Sorry for rambling but I am just trying
to take you through a preparation thought process to work from, so you will be
prepared to react.)

Have a good trading day.

Monday’s S&P 500 five-minute chart
with 8-, 20-,
60- and 260-period
EMAs

Monday’s NYSE
TICK five-minute chart

Anticipate Trap Doors And Volatility Bands

BUY THE FEAR, SELL THE GREED

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