Contracting Volatility Ready To Implode

  • July 11, 2000
  • Kevin Haggerty

After
light breakout volume of 930 million on
Friday, as the S&P 500 stuck its head out of the symmetrical triangle, the
index follows with an opposite day with the narrowest range in months of 11.8
points high to low and total volume of only 829 million. The
volume ratio was positive at 56, and advancers led decliners by +353.
Institutional blocks were only 17,515 which is a no-decision day. 


The overall market
continues to improve with New York Stock Exchange stocks over their 200-day
moving average at 57%, the most in quite a while. The volatility band for the
Dow continues to tighten, but not for much longer. 


The Nasdaq and NDX 100
continue to draw a line which is that horizontal trading range which affords, as
I have mentioned to you over the past few days, an excellent
opportunity for actively managed straddles because the narrow volatility will be
resolved with a strong move either way.


Some would look at
yesterday’s market and say, “Dead quiet, nothing going on,” because of
the narrow range and light volume, while I look at it and say, “Another
excellent trading day!” It’s not how the averages end up that determines
the day for a daytrader. It is what happens between the opening and closing
bells.


The rally in the S&P
500 from 11:00 a.m. to 2:00 p.m. was all you needed. You got entry in 11 of 15
stocks mentioned yesterday with excellent multipoint moves in Sanmina
(
SANM |
Quote |
Chart |
News |
PowerRating), Sun Micro
(
SUNW |
Quote |
Chart |
News |
PowerRating), Millennium
Pharmaceuticals
(
MLNM |
Quote |
Chart |
News |
PowerRating), Pe Corp
(
PEB |
Quote |
Chart |
News |
PowerRating), Analog Devices
(
ADI |
Quote |
Chart |
News |
PowerRating), and Mercury Interactive
(
MERQ |
Quote |
Chart |
News |
PowerRating).
The four financials also gave good entry,
with Citicorp being the weakest.


The S&P 500 ended it
rally at about 2:00 p.m. and turned south, trading down to 1475 from 1487. As
you will see in today’s chart, this down move was preceded by negative
divergence in New York Stock Exchange ticks. This chart should be real-time on
your screen all day as it gives you an immediate feel for the market dynamics
and helps you determine your entry and exit points.

Program
Trading Numbers

(September Futures)

Fair
Value

Buy

Sell

16.30

17.50

15.10

Pattern Setups

Sepracor
(
SEPR |
Quote |
Chart |
News |
PowerRating), Siebel
(
SEBL |
Quote |
Chart |
News |
PowerRating) (on a recross of the 170 level), Nextel Communications
(
NXTL |
Quote |
Chart |
News |
PowerRating),
Abgenix
(
ABGX |
Quote |
Chart |
News |
PowerRating), Protein Design Labs
(
PDLI |
Quote |
Chart |
News |
PowerRating), Medtronic
(
MDT |
Quote |
Chart |
News |
PowerRating),
Cardinal Health
(
CAH |
Quote |
Chart |
News |
PowerRating), Johnson & Johnson
(
JNJ |
Quote |
Chart |
News |
PowerRating), and Eli Lilly
(
LLY |
Quote |
Chart |
News |
PowerRating).

Also PMC Sierra
(
PMCS |
Quote |
Chart |
News |
PowerRating), Linear
Technology
(
LLTC |
Quote |
Chart |
News |
PowerRating) (above Friday’s high), American International Group
(
AIG |
Quote |
Chart |
News |
PowerRating) (above Friday’s high), Merck
(
MRK |
Quote |
Chart |
News |
PowerRating), Citigroup
(
C |
Quote |
Chart |
News |
PowerRating) (above
Friday’s high), General Electric
(
GE |
Quote |
Chart |
News |
PowerRating) and QLogic
(
QLGC |
Quote |
Chart |
News |
PowerRating).

On the short side, RF Micro Devices
(
RFMD |
Quote |
Chart |
News |
PowerRating) (on second entry).

Have a good trading day.

 

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