Hang On To The Guard Rails

July 19, 2000
Kevin Haggerty

Both
the Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) and S&P
500 hit walls at the retracement-alert zones. The S&P 500’s .786
retracement level was 1508 and it hit a 1517 high on Monday before trading down
to a 1491 intraday low yesterday and closing in the bottom of its range at
1493.75. It also closed below the low of a narrow-range high day which indicates
a change in direction.Â

The S&P 500 had an
expanded range bar yesterday that reversed the previous three closes and also
closed below the low of the past two days as the selling pressure dominated and
buyers disappeared. Total volume only increased to 911 million from Monday’s 906
million, but that is generally the case in early downside moves unless you have
had a buying climax, which we haven’t.

Volume accelerates to the
downside only if fear takes over and the Generals and retail all rush to the
exits at the same time. From the May 24 bottom of 1361 to the 1489 top on June
19 was +128 points in 18 trading days for the S&P 500. It then pulled back
to the .38 retracement zone around 1435 in eight days. That should be a
familiar number, as you are always cognizant of three-, five-, seven- and
eight-day pullbacks, especially when they are above both the 50- and 200-day
moving averages.

The S&P 500 rallied
from 1435 to Monday’s high of 1517, which is 82 points, so you have to be alert
based on parallel movement, that if this current leg duplicates the first leg
from 1361-1489, that should take the S&P 500 to the 1550-1570 level and new
highs. If the timing was equivalent to that first leg, it coincides with the end
of the month — familiar territory at report-card time.

So yes, we hit a
retracement resistance level and bounced back from it, but seeing that the last
eight-day pullback was only to the .38 retracement zone, you should expect
that there is a real probability, after a few days’ pullback, that the Generals
will run them to new highs. The S&P 500 is still over all three EMAs, the
10-, 50- and 200.Â

The NDX has done the same
thing as it hit the .618 zone almost to the number, 4083 vs. Monday’s high of
4089, and immediately dropped 3.4% to an intraday low yesterday of 3950, and
closing in the bottom of its range on a wide-range bar at 3961. You would expect
more than a one-day pullback, so you should be ready for pullback short entries,
such as 50% retracements to Monday’s high, with stops just above, and working
the five-minute charts, especially for short-term downtrending stocks pulling
back to their 260-period
EMAs.Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â

We have Greenspan again
on Thursday and then we have the third Friday of the month again this week,
which means options expiration, so hang on to the guard rails and keep your
finger on both the buy and sell buttons. It’s always good to outline both
possible scenarios for your trading plan so you are alert for any kind of alert
zones or any kind of changes in direction.

As mentioned yesterday,
below is a chart of Sycamore Networks
(
SCMR |
Quote |
Chart |
News |
PowerRating), showing the opening reversal
and the first breakout to new intraday highs from the first consolidation which
was a rising wedge with the breakout above 144 7/8.

(September Futures)

Fair
Value

Buy

Sell

14.75

15.85

13.55

Pattern Setups

On the short side, use the Qs and SPYs
on any kind of retracement in a downtrend on your five-minute charts if that’s
the kind of day we get.

Bottom fishers, take a look at Office
Depot
(
ODP |
Quote |
Chart |
News |
PowerRating). It was up 7 1/2% yesterday to 6 5/8 on 8.3 million shares vs. a
50-day average of 3.1 million as it named a new CEO.

Have a good trading day.

Hang On To The Guard Rails

BUY THE FEAR, SELL THE GREED

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