Divergence Confirmed

August 16, 2001
Kevin Haggerty

In
Tuesday’s text after watching Monday’s action, I
wrote, “Market action is not good when you get rising prices, declining
volume with narrowing of range.” The
(
NDX |
Quote |
Chart |
News |
PowerRating) had run up 6.1% and is now
back down 6% in just four days. Great volatility for the daytrader, but no
comfort to the position trader or institution trying to put some money to work.
Yesterday, the tech wreck continued, with the NDX 100 -3.5%, Nasdaq -2.3%, while
the
(
SPX |
Quote |
Chart |
News |
PowerRating) and Dow declined -0.7% and -0.6%. Volume picked up as the Nasdaq
traded 1.457 billion, or 83% of its average and a volume ratio of just 19.
Breadth was negative at -587. In fact, the declining volume alone of 1.175
billion was just under the previous day’s total volume of 1.219 billion. The
NYSE volume was just below its average at 1.062 billion, a volume ratio of 42,
and breadth slightly positive at +180.

The NDX made a new
retracement low yesterday of 1571.92, while the SPX closed at 1178.07, with 1169.55
the last swing-point low and the 1165.54 retracement low just below. The .618
retracement to the 1081 March low is 1171. You and the rest of the technical
analysis world is looking at the possible break of the
(
OEX |
Quote |
Chart |
News |
PowerRating) and SPX triple
bottoms, or for the classical gurus, a head-and-shoulder, and for those that
just say, “new continuation lows.” Take your pick, it all means the
same thing.

In yesterday’s text, I
said the minor-cycle high is this week, and 1672 certainly looks like a lock.
The stronger cycle is into the Aug. 22-24 time frame for a more significant low.
You will have a high-probability long position opportunity next week. Decide how
you will play it in advance: index SPDR’s, stocks, or both. I expect some
playable long reflex moves today, especially if there is an early down. Right
now, the S&P futures are -5 and the Nasdaq futures are -15. This should be a
more active session than Friday, and you should be ready to take advantage of
intraday long and short setups if you are trading the proxies, like the QQQs,
etc. Tech fear dominates a technically oversold condition, which is what you
like to see coming into a possible significant minor-cycle low. This can also
become much more oversold going into next week, and the possibility of an
airpocket knife is very strong.Â

As you know, we have
Greenspan again next week, and the fed funds futures are pricing in a 100%
chance of a quarter-point cut and less than 10% for a half-a-point cut.Â

(September
Futures)

Fair Value

Buy

Sell

3.00

4.10

2.00

Stocks
Today

FYI: Ninety-seven NDX 100
stocks closed below their mid-point yesterday, and 88 of those closed in the
bottom 25% of their range. I haven’t seen that in a long while. Yesterday’s
action left us with very few daily chart long setups, except in gold and the
Middle East rally in energy stocks. The
(
OSX |
Quote |
Chart |
News |
PowerRating) was +7.3% yesterday.

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

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Divergence Confirmed

BUY THE FEAR, SELL THE GREED

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