Focus On Intraday Patterns

• August 10, 2000
• Kevin Haggerty

The
S&P 500 after seven straight positive days ended
on the eighth day with an outside reversal bar, closing in the bottom of its
range, below the open, and right at Tuesday’s low. As you have seen, the numbers
three, five, eight, and to a lesser extent, seven, are very often reversal
points, depending on the strength of a move and where the stock/index is in
relation to inflection points.

The Nasdaq 100
(
NDX |
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gave us the second successive day with higher highs and higher lows, where it
closed below the open and at the bottom of its range. That is called selling
into rising prices by the institutions, as they take advantage of emotional
rallies. The NDX, from low to high, rose 13% in just five days before closing
yesterday at 3693, with an intraday high of 3780. 

The conventional wisdom is
that higher prices with higher highs and higher lows on increased volume is
always bullish, and, as I demonstrated at the seminar, it often is. But that
observation is only part of the analysis. You
must take into consideration the closing price in conjunction with the daily
range and the volume, which gives you a more valid interpretation of the day’s
activity.

Yesterday’s tape was a bit
of everything, as we had early upside gaps in techs, starting in Instinet due to
Cisco’s
(
CSCO |
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PowerRating) earnings. This set up some decent fades, as most of the
techs came back in before 9:45 a.m. Wal-Mart
(
WMT |
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PowerRating), after being bought up
the day before, warned and finished the day down over 4 points from Tuesday’s 57
5/8 high. Cisco was an excellent fade, as retail bought the earnings news,
taking it up to 70 in Instinet — only to see it trade back down to a low of 67
1/4 and closing at 67 13/16.

The best fade of the day,
however, and for the current week, was buying Eli Lilly
(
LLY |
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reopening, as it quickly rebounded as high as 78 in just minutes. Ariba
(
ARBA |
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points and that’s why I explained in
some detail the process of identifying good short opportunities in extended
stocks that have excellent momentum. When these kinds of stocks take a step or
two back, you can often catch a quick multipoint air pocket. I just wanted to
highlight the process, but you must do the homework by utilizing your charts of
different time-frames.

Yesterday’s market had
expansion of total volume to 1.05 billion, declining price, neutral breadth and
increased institutional activity with blocks increasing to 22,657. The volume
ratio dropped below 50 to 44. This
is not a scenario to rush in and buy them, especially when you combine your
observation of how the Nasdaq 100
(
NDX |
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For your trading plan, that
makes it easy, as you must demand that the stock initiate a trade-through
uptrend on your intraday charts to get involved. On the short side, you would
look for continuation entries in stocks that closed in the bottom of their range
and below the 200-day moving average. The second part of the short plan is to
identify any similar setups like ARBA yesterday.

face=”arial, helvetica”>(September Futures)
Fair Value	size=2>Buy	size=2>Sell
8.45	9.60	7.25

Pattern
Setups

There are not many good long setups
from the daily charts, due to so many closings below the midpoint. So intraday
patterns, in conjunction with today’s market dynamics, is where you should
focus. The ones that set up a little bit are: American Express
(
AXP |
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PowerRating),
Home Depot
(
HD |
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PowerRating), Northern Trust
(
NTRS |
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(
AGC |
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(
BUD |
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(
MLNM |
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Of America
(
BAC |
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PowerRating).

On the short side, if we start the day
weak, take a look at the QQQs
(
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retracement to declining EMAs on your five-minute charts.

Also Applied Materials
(
AMAT |
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Adobe
(
ADBE |
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PowerRating), Sapient
(
SAPE |
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PowerRating) and Hewlett-Packard
(
HWP |
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PowerRating).

 Have a great trading day.