Frustration

• April 22, 2002
• Kevin Haggerty

Friday
was a below-average NYSE volume day, with
the SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) trading in a very narrow 6 point range. The frustration
for traders and money managers in this trading-range market continues. It will
be six months in this sideways range for the SPX on about May 6.

First, there
was the parabolic bull market. Then a similar bear market. No mistaking the
trend. Next you got a “V” bottom, which rarely holds without a retest,
and this rally, which got most excited that it would be a repeat of the
parabolic bull, maybe to a lesser degree. The move off the “V” bottom
was swift, without a pullback, until the NDX
(
$NDX.X |
Quote |
Chart |
News |
PowerRating) retraced to the
.618 zone. The SPX got just below the .38 level, while the Dow has yet to
decline even to the .38.

The
(
IJR |
Quote |
Chart |
News |
PowerRating) and
(
MDY |
Quote |
Chart |
News |
PowerRating) are in their own bull markets. The
(
MDY |
Quote |
Chart |
News |
PowerRating) had been locked in a
100-96 box for two months, until last week, trading out of the box up to 101.75,
but on very light volume. However, it’s still above all of its moving averages. The
IJR, which is the small cap, is the most valuable player since the September low
and is well above all of its moving averages, but is now extended as the herd
follows each other’s success. The IJR closed at 127.18 in a 1-2-3 close
pattern and is extended. Short entry is below Friday’s low of 126.77 with a
stop, at a minimum, above Friday’s 127.64 high, which is only 0.6%, or at the
maximum, above the recent swing point high of 128.70, which would be a 1.5%
stop. This kind of trade above the lines is only for the aggressive trader with
discipline. It doesn’t change the fact that the highest probability shorts are
below the lines. 

The
(
$DJX.X |
Quote |
Chart |
News |
PowerRating)
remains in a flag pattern, closing at 102.57, which is above its 200-day EMA of
101.02 and 50-day EMA of 102.34. The 20-day EMA is 102.69. The NDX, which has been
in a decline since the Dec. 6 high, retested the .618 level of 33.09, using the
(
QQQ |
Quote |
Chart |
News |
PowerRating)s, on April 11, hitting 32.89, and then a quick reflex rally of 7.9% to
35.50 in just four days. They closed at 34.46 on Friday.

The semiconductors left
your neck limp after a real whipsaw over the past four days. For example,
(
KLAC |
Quote |
Chart |
News |
PowerRating) went from 63.36 to a 69.10 high in two days, then back to 63.52 the
next two. It closed Friday at 64.97 in a narrow-range inside day. That’s +9.1%,
then -8.1% during the four days. Good news, bad news.

This type of action makes
it too tough to navigate for all but the largest money managers. Position
trading without a defined-risk strategy is like extreme skiing. Forget about it.
In trading-range markets, you buy the weakness and sell the strength. Stops are
tight and position size is reduced over a larger number of positions to spread
your risk. Stay with stocks above the lines for longs and below for shorts. Run
your screens daily, and you will find those IJR and MDY stocks that are
trending, if you prefer the stock over the proxies.

Stocks
Today

I was out Friday, so I
have no real feel, but on the screens, I see very little from the daily charts.
So, it starts out today on the intraday charts as we wait for which way the
normal overreaction will occur.

On the longside,
(
SIAL |
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Chart |
News |
PowerRating),
(
ABC |
Quote |
Chart |
News |
PowerRating),
(
UTX |
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Chart |
News |
PowerRating),
(
YUM |
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Chart |
News |
PowerRating) and
(
EMMS |
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Chart |
News |
PowerRating).

On the shortside,
(
ALTR |
Quote |
Chart |
News |
PowerRating),
(
BGEN |
Quote |
Chart |
News |
PowerRating) and
(
MERQ |
Quote |
Chart |
News |
PowerRating).

Also, I suggest second
entry on all of these. 

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