Be Prepared

November 13, 2000
Kevin Haggerty

Volume
or no volume, it’s price that takes money out of our pockets and
last week’s carnage in the OTC market was expensive for many buy-and-holders. The
Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) made new lows again and lost 13% on the week. There was a
2.2% waterfall drop from 2956 to 2890 on the last four bars of the day. There
are stocks down 50%-60% but still up 200%+ on the year, so there has been a rush
to the exits on many of these stocks.

The S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating) on
the other hand, is down 4.2% for the week during this “election
process.” Friday’s washout of 2.4% for the S&P 500 and -5.5% for the
NDX 100 was on lighter NYSE volume of 976 million, while institutional blocks
dropped to 20,148 from 24,156 on Thursday. The Nasdaq Composite volume was
lighter than the up days we had on 11/2 and 11/3, but was 6:1 negative and was
light because there were few real buyers, as is the case with the S&P 500.

Fear-induced markets due to
events such as the current situation are great for daytraders, provided your
risk-management emotions are disciplined. This will pass — just as the Gulf War
did — and there will be some explosive reflex rallies, so you must take the
trades as they present themselves on your intraday charts.Â

It never ceases to amaze me
that the brokerage firms wanted you to buy and hold many of the big-name stocks
up 40%-50%, and not to worry about blips in the road because “over time,
good companies will make you money.” Now these stocks are down to much
lower levels and the analysts and portfolio strategists, with a few exceptions,
are invisible at exactly the time they should be recommending good companies
that have declined to more reasonable valuations.

Entry decisions for
buy-and-holders are just as important as they are for short-term traders. If, as
a long-term holder, your first purchase is too high up on the trading tree, your
risk is obviously much greater. Do you remember when Best Buy
(
BBY |
Quote |
Chart |
News |
PowerRating) and
Circuit City
(
CC |
Quote |
Chart |
News |
PowerRating) were momentum stocks and provided great opportunities
daily? So now you have a slowdown
that no one except the stocks themselves are talking about. CC is down from 65
in March to 12 currently, while BBY is down from 89 in April to 33 3/4.Â

Will people buy consumer
electronics again? Of course they will. Will these stocks recover? Yes, they
will. These are the kind of situations real buy-and-holders should be looking
for and if you’re not doing this, then you are simply a short-term trader. The
game is to buy and hold good companies when they are out of favor, not when some
analyst tells you, e.g., a Qualcomm
(
QCOM |
Quote |
Chart |
News |
PowerRating) is going to 1,000.

After Friday’s decline in
the chosen ones, you have stocks such as
(
ARBA |
Quote |
Chart |
News |
PowerRating) that set up as
trade-through shorts below Friday’s low but are liable to make quick upside
reversals from key Fibonacci alert levels. ARBA can airpocket south today below
the 7/31 low, trading below 99 3/4, but the .618 RT zone is 96-97 and you should
be alert for a possible reversal on the way back above 96-97 if there is a quick
airpocket move down.
(
NTAP |
Quote |
Chart |
News |
PowerRating) is another name that is right at its .618 level
and there are others if you go through your charts. Be
prepared in advance and then you will be able to look for intraday reversal
patterns and be ready for them.

face=”arial, helvetica”>(December Futures)
Fair Value	size=2>Buy	size=2>Sell
8.15	9.30	6.90

Pattern
Setups

After Friday’s washout,
there are not many continuation setups obviously from the daily charts, but a
few names did pop up on ourÂ 3-Day-Wake-Up-Call and Change-in-Direction
screens. The NDX 100 screen had only seven stocks that closed above the
midpoint, so for the big OTC stocks you are working off your intraday charts and
looking for Opening Reversals and Trapdoors if we come out weak again.

On the short side take your
pick, because so many closed in the bottom of their ranges.Â

Have a good trading day.

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Be Prepared

BUY THE FEAR, SELL THE GREED

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