Continuation Short Lesson

February 6, 2001
Kevin Haggerty

The Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) after a Trap Door run to an intraday high of 2484 by 10:30
a.m., resumed its decline down to its 2409 intraday low by 1:45 p.m., before
giving you its first entry pattern of the decline which was a double inside day
— or Dynamite Triangle if you prefer. This first entry was at 2418. There was
interesting convergence at the .50 retracement level, which is 2429 framed on
the daily charts, which you had done in advance.Â

You were then on alert for
the first Change in Direction pattern in the zone, which you got after the 2409
low: 2404 was the 1.0 Volatility Band and 2403 was a Fib extension of the first
leg up in the morning. High probability was staring you down. If you were
reluctant to take the first entry, then you got an early 1,2,3 entry above 2422
and a 1,2,3 trend entry above 2431, which also put the index in open field above
its 8-period moving average of the high.Â

The NDX rallied to 2470 by
3:30 p.m. before being stopped by Kings and Queens — which is two opposite
wide-range bars — but it closed at 2467. Just as the NDX formed its entry
patterns, obviously many of the 100 stocks were doing the same.

One of my
favorites is
(
AMCC |
Quote |
Chart |
News |
PowerRating). Including yesterday, it has given us three
continuation short days in succession. Friday’s low was 64 5/8. Yesterday, it
opened down at 64 1/8, traded to 62 before a Trap Door setup contra rally took
it up to an intraday high of 66 1/8 by 10:30 a.m., the same as the NDX.

Because of the gap opening,
there was no first trade-through short entry, but 62 is interesting because the
.618 retracement on your daily charts was 62.06. The bounce offÂ 62 and
then an Opening Reversal above 64 1/8 was with excellent volume. It wasn’t meant
to be yet, as AMCC reversed the Friday low of 64 5/8 and traded down to the
intraday low of 61, right back to the alert zone. The 1.27 extension of that
first leg up was 61.47, so there was a lot happening between 61 and 62. From
there, it rallied with the NDX up to 65 7/16, closing at 65.Â

The purpose of this lesson
is to demonstrate real-time what I said yesterday, which is to do the work on
the daily charts to be prepared for intraday trades. Sequence trading is an
additional topic I will be covering at the Naples seminar.

The NDX hit the .50
retracement level yesterday, and the .618 is just below at 2348. When the index
or individual stocks get to inflection points, you must be on alert for Change
in Direction patterns. The NDX has now pulled back eight days — I’m sure that’s
a familiar number — and closed yesterday in the top of the range. After the
Friday and Monday downs, I expect some more upside reflex.

The S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating)
has pulled back only three days to its
20-day EMA of 1350, closing yesterday at 1354. The low of the pullback was
1344.48. Unless we are about to
fly, it probably has more work to do to the downside. The .38 is 1334, .50 1318,
.618 1303 and the .786 1281.Â

The percentage of stocks on
the New York Stock Exchange over their 200-day moving average is at 70%, as the
advance/decline line continues its ascent. That says there are lots of stocks
out there that are running strong, just like the Semis have.

(March
Futures)

Fair Value

Buy

Sell

6.90

8.20Â

Â 5.60Â

Pattern
Setups

Have a good trading day.

Continuation Short Lesson

BUY THE FEAR, SELL THE GREED

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