Bear Tracks

  • October 18, 1999
  • Kevin Haggerty

Bear Tracks On Friday, the S&P futures were down around 2.5% pre-opening, and the bonds, as usual, couldn’t immediately decide which way they wanted to go. But the flight to safety won out, and they were up 14 ticks by 11:00 AM.

The bear raid was accomplished early on Friday
The bear raid was accomplished early, in the first four bars of the five-minute chart. They took out the prior lows and blew out the stops. Not unusual. The SPDRs (SPY) traded down to a low of 124 15/16, and then staged a very fast counter-rally up to 126 3/4 just before 11:30 AM. Like clockwork, QCOM (see Figure 1), ADBE, CMGI, CMVT JDSU and AOL all made excellent reversal moves during that first counter rally. That was the long-side play of the day. If you missed that, you missed the long side.



Figure 1. Qualcomm (QCOM), five-minute. In QCOM, as in several other stocks, the long-side opportunity came early on Friday. Source: IQC.com.

The S&P 500 then went sideways until around 2:30 PM, when it got blown out to new lows. SPY broke below 126 to new lows at 124 1/2 before closing at 124 7/8. SPY had been locked in a 42-bar (five-minute bars) consolidation between 126 3/4 and 126 from 11:00 AM to 2:30 PM –you could probably call it a slightly wider-range Slim Jim. There was a short-side entry in SPY staring you in the face as they broke below 126.

Save your five-minute charts on the stocks listed above as well as SPY. Remember, there are no support levels in bear markets and no resistance levels in bull markets. Fear and greed determine the levels when emotions rule the market as they did on Thursday and Friday.

Target Stocks Of The Day Today is clearly another reaction-mode day, and the best entries will come from your five-minute charts, as they did the past two days, and from second entries off continuation patterns. On the long side, watch IBM [IBM>IBM], which reacted well at that key reversal level, and Merck [MRK>MRK], which has pulled back to its 200-day exponential moving average (EMA). Also, in the Internets, keep America Online [AOL>AOL] and CMGI [CMGI>CMGI] on your radar for intra-day moves off the five-minute charts.

Continuation patterns that set up (I’d advise you to take second entries) include Comverse Technology [CMVT>CMVT], JDS Uniphase [JDSU>JDSU], Nextel [NXTL>NXTL], Siebel Systems [SEBL>SEBL], Micron Technology [MU>MU] and Verity [VRTY>VRTY].



Program Trading Numbers
BuySellFair Value
11.257.859.55
On the short side, continue to play the SPDRs [SPY>SPY], QQQs [QQQ>QQQ] and Diamonds [DIA>DIA]. What is more clear than the short-side play you had in SPY below 126 on Friday? The next choice for a short would be a stock that pulls back to a declining 200-day EMA, with a tight stop right above the EMA. This week will obviously be volatile, but will provide opportunity on both sides: fast profits as you move up your stops, the reverse if you’re short, are the order of the day–and don’t take home any day trade overnight. Those helmets should remain on.

If you want to learn more about Kevin Haggerty’s trading strategies, click on the link below to go to his series of tutorial articles.