Coin Flip

June 20, 2002
Kevin Haggerty

All of the major sectors
finished red, and even the contrary sector, which is gold, was red, with the
(
XAU.X |
Quote |
Chart |
News |
PowerRating) -1.3%. The SOX
(
$SOX.X |
Quote |
Chart |
News |
PowerRating), led by the chip news flap
yesterday, closed at 412.19, -6.7%. That didn’t prevent us from taking advantage
of the contra rally in the
(
SMH |
Quote |
Chart |
News |
PowerRating)s after the initial gap down opening. The
SMHs closed Tuesday at 34.55, opened at 33.75 yesterday, then traded down to a
33 low on the 10:20 a.m. bar. The 1.5 volatility band was 33.04.

We got a defined 1,2,3
entry above 33.20, which traded up to 33.80, but like the rest of the major
indices, reversed around noon and went south for the rest of the day. The SMHs
closed at 32.25 at the 2.0 volatility band zone and back to the Fib retracement
level where this 15% three-day rally in the SMHs started. The last reflex in the
SMHs from the .618 retracement zone at 36.05 was +23% to 44.80, which was also
the 200-day EMA. That lasted six days. If you also played that retracement short
at the 200-day EMA, you have been a happy camper.

Emotions continue to run
high, and that means overreactions, which lead to opportunity for traders in
both directions, and that intraday volatility continues to be exasperated by the
Program Gang. You had better learn the skills to trade both ways in each trend
because after the initial run in the next bull market that also includes growth
stocks, we can very easily settle into a long trading range market cycle that
most of you have never experienced, nor have most of the current portfolio
managers on the buy side.

For example, all through
the ’60s up until the 1982 low, it was a trading range market that went nowhere.
This trading range market followed the ’50s, which was a good buy-and-hold
market. From 1982 to the 2000 peak, it has been an extraordinary buy-and-hold
market. Unfortunately, those that don’t believe in market timing are still
holding…the empty bag, that is. My guess is that a trading range market is a
reasonable probability because it is an extremely low probability that a
parabolic market will be followed by another one when the next bull market,
which carries all boats, gets going. It’s also a high probability that most of
us, certainly me, will never see that kind of a parabolic market again.

Today and Friday’s
expiration are just coin flips in my mind, which means just try and be on the
same side as the programs. Take only strong setups with tight stops and take
half of your profitable trade off while moving the remaining part of it to
breakeven. If you enter a trade expecting immediate continuation and it goes
quiet on you, get out, because you can always reenter the trade.

Stocks
Today

On the short side, stay
with the index proxies, and also take a look at the
(
BBH |
Quote |
Chart |
News |
PowerRating)s on the short
side.

Have a good trading day.

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

Five-minute chart of
Wednesday’s NYSE TICKS

Coin Flip

BUY THE FEAR, SELL THE GREED

Quick Links

Company Info

Contact

Company Resources