Anticipation

April 24, 2001
Kevin Haggerty

Going
into yesterday, the Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) had
gained 633 points or 47% from the 1349 low to a 1982 high on Friday. The rally
off the low in just 12 days was a “V” move, in contrast to the S&P
500 SPX which has rallied 16% from the .786 longer-term retracement zone and
gave us a 1,2,3 pattern at that key zone.

For those of you who don’t
use your audio, Monday’s text was primarily about taking advantage of the
probable air pocket shorts due to the recent 100% moves in many of the
(
JNPR |
Quote |
Chart |
News |
PowerRating)s,
(
CIEN |
Quote |
Chart |
News |
PowerRating)s, etc., and I will include many of those same names today because
there is so much travel range. It
doesn’t matter whether we are retracing or advancing, it is going to be
extremely volatile long or short in the good trading stocks. Because of this,
you might try to narrow your focus list to the most volatile, reduce your
position size and give yourself some more room on your stops.

In the pre-opening
yesterday, the S&Ps were down 8, and the NDX futures were -42, while the OTC
trading stocks were all red and -2 to -3 points. The opening was down and the
trend stayed that way all day. Contra trades were weak and failed. The NDX
looked like it would give us a good contra rally from the 2.0 Volatility Band
which was 1809. The low was 1807 but only rallied to 1822 before turning down to
1803 and closing at 1811.89 or -6.3% for the day. The SOX was -5.8%.

The SPX tried to get going
a couple times at the 1.5 band of 1221. It hit 1222 and then a head fake to
1225, failure, then a second try from 1219 to 1223, failure again, and down to
1217 at 3:30 p.m. It then gave you a top-of-the-range tail entry and traded up
to 1225 into the close of 1224.36 or -1.5% on the day. The overall volume was
light at about a billion shares.

With yesterday’s gap down
Change in Direction bar on your daily chart and the fact that the NDX advanced
47% in 12 days, you would have to expect some more down after yesterday’s -6.3%.
We want to be aware of any continuation shorts today in those stocks that have
advanced the most during the rally. We also should be aware of pullback levels
where stocks broke out of defined patterns, such as
(
EMC |
Quote |
Chart |
News |
PowerRating) which came out of
an inverted head and shoulders above 37.92 on good volume and closed at 39.95
yesterday. You should be watching it closely to see if the breakout Generals
return to buy on the pullback from Friday’s 46 high.

Unless the rally turns into
a rocket ship, you would expect the NDX to pull back a minimum of three bars.
The .38 retracement to the 1349 low is 1741. The .50 RT is 1665, the .618 1591,
the .786 1484. The 10-day EMA is 1769 and the 20-day EMA is 1715. Put those
numbers on your desk as a frame of reference for observing the action at each
level. It would be very unusual not to retrace at least to the .38 level of 1741
and probably more. The mood is still extremely fragile and fear comes back very
quickly, which will create those air pockets. Going
into today, your first NDX inflection point should be the 50-day EMA of 1819 vs.
the 1812 close. If it trades above that, then reverses down, that is a short
opportunity and after that you have yesterday’s low of 1802.82.

Reference points for the
SPX are the 50-day EMA at 1208 and 20-day EMA at 1190.50. The Fib retracements
are .38 1188, .50 1167, .618 1147, .786 1118.

Stocks
Today

(June
Futures)

Fair Value

Buy

Sell

6.00

7.30

4.65

Going forward, if this
rally continues, I like techs, energies and the brokerage stocks that really
didn’t setup yesterday but stay focused on them.

Have a good trading day.

Anticipation

BUY THE FEAR, SELL THE GREED

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