Caveat Emptor

August 14, 2000
Kevin Haggerty

Friday
was expanded breadth on reduced volume with
a close in the top of the range for both the S&P 500 and Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating). The S&P 500 closed above both the 10- and 50-day EMAs which is,
of course, a positive. The NDX bounced off the 200-day EMA but is still below
both its 10- and 50-day EMAs. After all the volatility last week in the techs,
the NDX only finished +0.7% on the week, but there was considerable travel range
within that flat week. Volume
dropped to 836 million, advancers over decliners by 1145, volume ratio very
positive at 70, institutional blocks fell off to 17,549, while there was still a
very positive 61% of all NYSE stocks above their 200-day moving averages.

The S&P 500 stocks as a
group were very light, as almost 75% of them advanced on Friday on the lowest
S&P 500 volume in over a month. It is good to review some inflection points
every week, so I will do it today for the S&P 500 and the NDX. The
S&P 500 is bounded on the upside by a down trendline from 1517 through the
1490 swing point high. This puts upside resistance at 1485-1490 or 148 1/2 to
149 on the SPYs.Â

On the downside, the 50-day
EMA is 1461 and then you have Friday’s low of 1453. The afternoon trend went
sideways Friday after the early uptrend. The closing range for the S&P 500
was 1475-1470. This is the first
place to key on the market today, depending on whether it breaks out of the
upper or lower boundary, and the SPYs long or short would be your trade.

On the five-minute charts
there is a convergence of the 20-period EMA of 1472, 60-EMA of 1470.85 and the
260-EMA of 1470.62, so a break above the 20-EMA with a green screen would
probably mean a breakout of the upper–range
boundary of 1475. Anything below the 60- and 260-EMAs would probably take it
below the lower boundary of 1470.

By doing this exercise, you
have set a framework to review today’s action.

The NDX, which also closed
at the top of its range after bouncing off the 200-day EMA, meets its first
resistance at about 3750, which is the down trendline from 4089 through the
swing point high of 3780, which is of course the key swing point it has to clear
to get going on the upside. On the downside, the 200-day EMA sits at 3528 and
the ever-dangerous minor low of 3342, of August 3.

There were many
top-of-the-range closes in stocks Friday, as evidenced by the S&P 500 and
NDX, but that is after only one
down day following the swing-point-reversal day last Wednesday with a high of
3780. So buyer, beware.

Now that we have framed the
current inflection points, let’s put some stocks in the trading plan. I would
expect nothing but good news this week out of Washington to bolster the obvious,
so we could get a good upside pop.

face=”arial, helvetica”>(September Futures)
Fair Value	size=2>Buy	size=2>Sell
7.90	9.05	6.65

Pattern
Setups

Â Have a great trading day.

Caveat Emptor

BUY THE FEAR, SELL THE GREED

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