First Friday Game Show

July 7, 2000
Kevin Haggerty

Owing to technical
difficulties, the audio portion of Kevin Haggerty’s commentary is unavailable
today. We apologize for the inconvenience.

The uptrend in the
S&Ps and QQQs started
about 10:45 a.m. ET and never looked back. We got a reflex rally in the SOX as
it made up about 50% of Wednesday’s 9.3% drop, closing +4.5% on the day. All of
the major sectors except the drugs finished green. The big-cap techs, with the
exception of EMC, were all up 3%-4%. The S&P 500 remains in its nine-day
30-point range between 1470 and 1440 while the Dow also continues to trade in a
narrow-range diamond pattern on your weekly charts.Â

For those that have straddles on the
Dow and are prepared to trade the breakout of the diamond pattern, there could
be a strong directional play. The Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating), led by the semis, turned
it around and closed at 3793, up 3.9% and bumping up against that familiar 3800
ceiling. We have been there a couple of times.Â The brokerage stocks give no hint of
impending trouble as they continue their rally with Merrill Lynch
(
MER |
Quote |
Chart |
News |
PowerRating)
breaking out to new highs and Morgan Stanley
(
MWD |
Quote |
Chart |
News |
PowerRating) and Lehman
(
LEH |
Quote |
Chart |
News |
PowerRating)
closing in on the previous highs. These are good proxies for the market because
the Generals will blow them out at any sign of an impending bear market.

The total volume yesterday slipped to
950 million, but the volume ratio was positive at 54 and advancers led decliners
by +393 so it certainly didn’t appear that there was any overt news coming from
today’s first-Friday-of-the-month game show. The earnings focus will be more
dominant than any of the statistics coming out of Washington which are suspect
at best as even Greenspan has reacted to some of them with guarded skepticism.

Volatility has narrowed considerably
overall in the S&P 500 which is locked in large symmetrical triangle
starting from the 1553 high, drawn through the 1489 high which followed the
rally from 1361. The bottom line of the triangle is drawn from the April low of
1339 through the 1361 low. The index is hugging the upper side of the triangle
above its 10-, 50- and 200-day EMAs. Also, the New York Stock Exchange cumulative advance line is
advancing in addition to 55% ofÂ New York Stock Exchange stocks above their 200-day moving
averages. The best in quite a while.

The upside breakout comes above the
1475 level and then again above the 1489 level. If you draw a line from the apex
of the triangle, it’s around the 1435 level which would be a stop level with the
200-day EMA below it at 1418. This is an excellent risk-reward ratio on an
upside breakout. See the Investor’s Business Daily for the symmetrical triangle
chart.

The Dow is locked in a similar
triangle just below its 200-day EMA, and is bounded by about 10,800 on the
upside and 10,350 on the downside. Both of these setups can be played with
straddles and then lift a leg in the direction of the breakout on half of your
position and then again on a pullback and go. The Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) is locked in the
3600-3800 range since June 2, but did have a breakout to a 3990 high but then
retreated back into the range after three closings out of the range. You should
be ready to play the QQQs on a break above 3800 with tight stops. Obviously, one
of the moves above 3800 or below 3600 will be an explosive one.

I am doing this before the first
Friday’s game show, so who knows what’s going to happen on the reaction
afterwards? We might just end up fading the open on any over-reaction but we
must go through the drill on the setups anyway.

Program
Trading Numbers

(September Futures)

Fair
Value

Buy

Sell

16.80

18.00

15.65

Pattern SetupsÂ Â

Have a good trading day and a
wonderful weekend.

First Friday Game Show

BUY THE FEAR, SELL THE GREED

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