Establish Early Pivot Points

November 20, 2000
Kevin Haggerty

The
early morning election roller-coaster Friday
gave us 63 points of travel range for the S&P 500 by 11:30 a.m. We also had
option expiration on Friday. First we had a Trap Door as the S&P 500 cash
dropped from 1379.09 to 1362.61 in just four bars, then the political feel-good
rally to 1384.85 by the 10:20 a.m. bar, and then the Supreme Court or whatever
decline to 1355.55 on the 11:30 a.m. bar. That is 63 points of travel range in
two hours. The inmates are now running the asylum. 1355.55 proved to be the
intraday low as the S&P 500 traded back up to 1370.47 in a series of
staircase moves.Â

At 3:00 p.m., the
expiration action took the S&P down about 10 points to 1360.59, and then
rallied from 3:40 p.m. into the close at 1367.72. The travel range total at the
end of the day was about 109 points of action. If this insanity keeps up, it
will be better to just come in and trade the contra move in the mornings and
then disappear and do something that makes sense for the rest of the day!

With all of this travel
range in both of the major averages, it is necessary to know where your pivot
points are starting each day. You should have identified the weekly trend, then
you check your daily charts for the short-term trend. Next, you mark yesterday’s
high, low and close, along with the weekly high, low and close. Then, you review
the intraday time periods which are the 60-minute, 15-minute and 5-minute
charts, to see where the close is in relation to the EMAs.

Looking at the S&P 500,
I see a high, low, close for Friday of: 1384.85 high, 1355.55 low and the close
at 1367.72. The weekly high, low is 1395.96 and the low is 1328.62. On the
intraday 5-minute chart, I use a 20-, 60- and 260-EMA which is the same thing
as a 20-period EMA on each of the 5-, 15- and 60-minute chart. I will also use
an 8-period EMA on these charts for early warning.

The S&P 500’s close of
1367.72 closed just above the 8-, 20 and 60-period EMAs on the 5-minute
charts. The 260-EMA is 1372.14, so that is a key early pivot point. Trading
below the 60-EMA of 1366.02 is your early downside pivot, after which you focus
on Friday’s low of 1355.55. The opening becomes your first early pivot point,
assuming you are not utilizing the volatility bands in pre-market Instinet
trading.

The strongest stocks or
indexes will trade above the previous day’s high, which means above the open,
and of course positive vs. the prior day’s close or vice versa for sells. When
you make your trading plan, you look for trades where both the weekly and daily
trends are positive for longs or negative for shorts. Then you work your
intraday charts as I mentioned above. The
first trade of the day will almost always come from either an Opening Reversal,
Trap Door, fading a volatility band or a continuation move above or below the
previous day’s high or low.

When you lay your trading
plan out correctly with possible longs and/or shorts, you are in a position to
react rather than predict, and that’s what daytrading — or any kind of trading
— is all about. When someone asks
me what I think of the market today, I reply is, “I don’t, but I am ready
to react to what it does!”

face=”arial, helvetica”>(December Futures)
Fair Value	size=2>Buy	size=2>Sell
6.90	8.10	5.70

Pattern
Setups

Have a good trading day and keep in
mind that this is a holiday week and it will be thin.

Establish Early Pivot Points

BUY THE FEAR, SELL THE GREED

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