As The World Turns

March 23, 2001
Kevin Haggerty

Yesterday
was a powerful move from the extreme oversold condition
at a key alert zone. I have included the weekly chart of the S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating),
showing the .50 retracement level where the SPX last rallied, and that was
+10.3% from the 1254 low to 1383 which ended right at the 30-week EMA. The SPX
barely slowed down at the .618 level (not shown on the chart) but yesterday’s
early selloff put it right down to the .786 zone of 1058 which is marked on the
chart. Yesterday’s intraday low was 1081. This zone had other convergences with
some Fib extensions of the decline from 1530 to 1254 and the retracement to
1383.

According to Merrill
Lynch’s Richard McCabe, the 10-day average TRIN was 1.5, seen only twelve times
in the last 40 years and always at intermediate or major bottoms. This, in
addition to the positive tech divergence the past two days — especially the
Semis — fueled the oversold rally. The SOX is up +15.2% in two days. Love them
or leave them. If you didn’t catch
any trades in a Semi or two yesterday, then it’s time to pick a different sport.
Summed up, it was an excellent day for daytraders both long and short as money
was rotated from the smokestacks to techs in addition to running some shorts in.

When the SPX and Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) started down in March of 2000, there were three major sectors that
started up. The XLEs advance +41%, hitting a high last October; the DRG advanced
+56%, topping out November; and the XLFs ran 57%, topping in January of this
year. In October, the XLBs started a run advancing +34% topping March 9 and
obviously was key in holding the Dow up.

The Semis started to bottom
from October to December of last year, and
then had an explosive run and have since retraced, but almost all of them have
held their lows. To make money in the smokestacks, it’s a first-in first-out
scenario for institutions, and a +30% to +40% move is a good one so like sheep,
they all got to the exit at the same time. It is good to keep the sector
rotation in perspective as there is usually always something to play long or
short at any given time. The
question is, “Is this a major rally or just a good oversold bounce?”
The answer is, “Who knows?” but there is room for a good reflex bump.

For the Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating),
a rally just back to a severely declining 10-week EMA is a +21% move, and for
the S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating) it is a 12% run, similar to the rally from the .50
retracement level. It does little to change the predominant trend on the chart,
but gives us some great opportunities to ring the register during the rally —
and maybe lay some out at the declining EMAs if
this rally lacks any substantial volume.

Many of the Generals got
off the fence and put some money to work in Techs as the NDX advanced +6%
yesterday, the MSH +5.9% and the SOX +12.3%. I have seen some major institutions
run markets like this before at key oversold junctures. The story goes something
like “underloved and undersold, room for a major bounce,” if you get
my drift.

Weekly Chart of S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating)

I have also included a
chart of
(
MU |
Quote |
Chart |
News |
PowerRating) as a tech proxy for the Semiconductor cycle, which is the
primary one. You can see the extent of the spike ups and the same knife on the
way down. The ’95 cycle and the current one are very similar. The ’95 cycle was
a +6.8 bagger, followed by an 82% decline, while the recent one was a +5.7
bagger up and a decline so far of 71% to 28, and we are all, of course, hoping
this is the bottom of this Semi cycle. A
daytrader doesn’t have to make that decision, but if you do you damn well better
do it with an option strategy if you want to remain in the game. Yesterday is
history and we start fresh again today, so show us the money, Generals.

Monthly
Chart of Micron Technology
(
MU |
Quote |
Chart |
News |
PowerRating)

(June
Futures)

Fair Value

Buy

Sell

10.10

.11.75Â

Â 8.45Â

Pattern
Setups

The
Biotechs are obviously extremely oversold. Look for a quick bounce in the BBHs
which finished in a long tail yesterday.

Have
a good trading day.

As The World Turns

BUY THE FEAR, SELL THE GREED

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