Frame The Level, Plan The Attack

April 29, 2002
Kevin Haggerty

The
(
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PowerRating) led
the down at -4.4% on a recross of the 200-day SMA to the downside. The
SOX is down six of the last seven days, and is -17.3% for this current downleg
from 48.10. The SOX closed at 514.73 and as close as it’s been to the 500
support level since last November. The SMH low was 40.68 which completed the
minimum downside pattern requirement which you will learn at the seminar. There
is a confluence of three number from 38.70 to 39.52. Below that zone, you have
the .618 retracement to the December low of 36.05 and the .786 level at 32.21.
Prior to this 17.3% leg down, four of the last five declines have been either
15% or 16%, and then uplegs which were +19%, +12%, +26% and +12%. There was one
-9%, then +12% leg in between those four legs.

The SPX closed at 1076.32
and has more downside room to the .50 retracement to the September low, which is
1061. There is a .618 and Fib extension confluence at 1033 and also at 1013. The
.786 level is 994, and the range projection down from the 1177 to 1074 zone is
971.Â

The Nasdaq Composite
closed below the 1696.55 low, which activated the potential reversal zone. Refer
to the April
15 text for the levels.

The Dow is on the high
road right now, with the
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rally at 95.30. The .38 retracement for the September low is 94.11. The DIAs are
below all of their moving averages and certainly have room to play catch-up with
the techs on the downside.

The tech extreme sell-off
by the herd is getting close to highly probable standard deviation reversal
levels. For example, the
(
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PowerRating) tech SPDRs closed at 18.80 vs. the 2.0
standard deviation band which is 18.04, and the third standard deviation band is
down at 16.87. The September “V” bottom was the most extreme since
1987 and was also beyond the third standard deviation band, but quickly reversed
back toward the mean. You must have a plan of attack at extreme levels and it
certainly should include a defined risk options strategy.Â

The market goes up on two
things, money and the desire to use it by the Generals. Right now the Generals
have walked away and there is no desire to use it, so that means that the market
is captive to program attacks, i.e., legal front-running of their own and
customer orders where they can choose their own inflection attack levels and the
time. You don’t really think that the Generals move billions of dollars every
time you get one of those dubious Bureau of Labor statistic reports that has the
media and retail captivated and is a license to coin money by program traders.
It’s like the wolf attacking the sheep herd. The ironic part is that they get to
do it on the upside also when the Generals all pile on at once to spend the
money with greed and fear of missing a move as the catalyst.

Stocks
Today

After Friday’s decline to
the vicinity of inflection point levels, it pays to focus on the proxies,
especially the SMHs. Any short continuation trades are also better taken with
the proxies. Any further decline in the overall market indices will probably see
the
(
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PowerRating)s and
(
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PowerRating)s pick up downside momentum to play catch up.

On the intraday stock
side, let the Generals initiate the first move, then you look for either the
pullback or retracement to short. This week is a program trader’s dream with all
of the reports coming out. It is also the last two trading days of the month.
The graveyard is already full of heroes, so be careful.

Have a good trading day.

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

Five-minute chart of
Friday’s NYSE TICKS

Frame The Level, Plan The Attack

BUY THE FEAR, SELL THE GREED

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