Below The Lines

• January 22, 2002
• Kevin Haggerty

Option
expiration and earnings news were
the lead act in the game last week, and the results were ugly at best. The
Nasdaq
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$COMPQ |
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Same song as stocks were bid up in advance because they thought companies would
beat estimates, and some did, but that was only after estimates had been lowered
10 times prior to being able to beat it. Oh, I forgot to tell you, revenues were
off 50% and backlog is nonexistent, etc. I guess they will have to bring back
the Texas Instruments CEO
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TXN |
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bottom” speech that everyone jumped all over two weeks ago. 

When the averages were at
key resistance, the “trend is your friend” gang was front and center,
and CNBC paraded a line of bulls that probably sucked in more unsuspecting
retail once again at the wrong entry point. The point is stay the hell away from
all of the noise, and do your own work. 

One of my New Year’s
wishes is that all of the files that have been lost by Hillary, Billy boy, the
FBI, Enron, etc., are found. Simply amazing, isn’t it?

Starting the week, the
major indices are trading below all of their EMAs, and other than the five-day
put/call ratio, I see no significant oversold condition yet. The basic
industries, led by the chemicals, were leaders on the downside last week,
followed by technology. The semis caught the air pocket and the flip side of the
tape played as the defensive stocks were up on the week. Some financials were
green at week’s end, but not the brokers which have been very strong recently
and are still above both their 10-week and 30-week moving averages, as are the
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best of the major market indices has been the IJR, which is the Small Stock 600
index.

The SPX
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NDX
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recent swing-point highs, so I would expect a reflex back to at least the moving
averages, if not more. The NDX could catch some room reversing the 1557.18 low
of Dec. 20. The NDX closed at 1548.22. I would use that as your pivot point
today. The DJX has to come out of
the narrow-range 3 pattern above 98.31 to give you any upside. The SPX above
1129.10 puts it in an intraday uptrend above the moving averages. See your
five-minute chart.

For your trading plan,
make sure you outline the high and low points of the major indices, starting
with Friday’s high and low and then the weekly high and low. Check your
longer-term moving averages for recross levels and/or shorts into these moving
averages. See if there are any Fib levels that come into play. Note where both
the 200-day EMA is along with the 200-day SMA as both often come into play.
Watch the intraday action as price approaches these moving averages and look for
setups. Check your weekly charts for the 10-week and 30-week moving averages,
both SMA and EMA. I also look at the monthly charts with the 12-month EMA/SMA.
For example, the SPX has retraced a perfect 1 2 3 4 sell pattern to the 12-month
EMA, so you certainly know where more downside starts.

A couple of points that I
must mention are that 1) Bollinger Bands are not even close to being volatility
bands; 2) ADX is a lagging trend indicator, and to get above 30, it must have
been a strong directional move. There are many pullbacks to the 20-day moving
average or the first pullback to the 200-day moving average that very often will
have an ADX less than 25, or even 20. So, don’t limit your search when you are
screening for trades. When you screen for potential breakouts from
consolidations, ascending and descending triangles, or daily chart Slim Jims,
etc., you will most often see ADX below 25 or below 20. When the ADX gets above
30, there’s a very strong trend, and hopefully you will have spotted it before
then. You want all of those setups in a strong trend, but position trades are
better taken lower on the trading tree, and that usually means a lower ADX
starting out. 

Stocks
Today

Setups today are very
thin, but some that do set up on the daily charts are
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FITB |
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LOW |
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BBY |
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ELBO |
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YUM |
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EMLX |
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NETA |
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KRON |
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WLP |
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On the
(
BBH |
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don’t care until they get down to the 116-117 level. 

And also, on the
shortside, because of where we are, I’d stay with the proxies in all the major
indices.

Have a good trading day.

Five-minute chart of
Friday’s SPX with 8-, 20-,
60- and 260-period
EMAs

Five-minute chart of
Friday’s NYSE TICKS