Day Two

September 18, 2001
Kevin Haggerty

As to
be expected, most of the
decline was on the opening yesterday, as the market makers and specialists took
the opening order flow down deep, which is a given with this kind of emotion.
The QQQs opened at 31.25, down -8.3% and closed at 31.20. After the deep
discount opening, they rallied to a 32.80 intraday high before 11:00 a.m. and
then it was a trend down for the remainder of the session.

Once again, there was
opportunity with Trap Doors and volatility band trades regardless of whether you
played the index proxies or individual stocks. The
(
DIA |
Quote |
Chart |
News |
PowerRating) opened at 90.50,
-6.2%, then rallied to 92.30 before trending down to close at 89.10, -7.6% and
taking out the April lows. It was a good pop from the extreme third standard
deviation bands of 91.20 on the daily charts and 90.40 for the weekly. These
bands are based on historical volatility of the Dow and percentage moves away
from a longer-term price trend of closing prices. All of the major rallies have
started from the second to third standard deviation bands. Be prepared to take
advantage of any upside move today.

The
(
SPX |
Quote |
Chart |
News |
PowerRating) was the
best of the bunch, closing at 1038.77, -4.9%, while the NDX 100
(
NDX |
Quote |
Chart |
News |
PowerRating) closed
almost on the opening at -8.3%. Yesterday ran the gamut of the half-point fed
funds rate cut and also the discount rate cut, in addition to many corporate
buybacks, which was bolstered by more liberal rules by the SEC. Circuit breakers
were implemented and OPEC made noise about increasing oil production to
offset shortages and any spike in prices. Let’s see how they do when the
shooting starts. Consumers will
certainly take a bunker mentality, and what was slow prior to the attack will
get even slower. How good can that be?

Yesterday’s extreme
emotional NYSE volume of 2.4 billion was double its average volume and was
bolstered by the many programs with the Triple Witch expiration this week. It
was just over two billion declining volume and only 336 advancing, with a volume
ratio of 14. Decliners led advancers by a whopping -2067. The Nasdaq was as
lopsided, but surprisingly, only traded 30% more than its average volume. For
daytraders, the mental exercise of what’s going to happen serves no function
because we are in uncharted waters. But we do know volatility reverts to the
mean, and you must be able to pull the longside trigger as well as short.

The scorecard from
yesterday indicated you got killed in your 401(k)s and IRAs, while the market
makers and the specialists made a killing. If you learn how and when to fade
emotion, you will also look much better in your P&L.

Stocks
Today

Primary focus should be
on the QQQs, DIAs and
(
SPY |
Quote |
Chart |
News |
PowerRating)s because the market reflex moves are easy to
read and your execution will be much better than individual stocks. This action
will be from your intraday charts. You know where yesterday’s lows are and you
also know how to play an upside reversal of those lows.

On the shortside, stay
with the market proxies, which are the QQQs, DIAs and SPYs, for easier
execution. We are at extremes on all of the market indicators, in addition to
the standard deviation, so it will be a wild ride, which is a great opportunity
for daytraders.

Have a good trading day.

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

Five-minute chart of
Monday’s NYSE TICKS

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Day Two

BUY THE FEAR, SELL THE GREED

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