Heads Up…Again

July 25, 2001
Kevin Haggerty

The
range resolution continued yesterday as
we had said this week would bring new levels. The NDX 100 took out the previous
1600 low on an intraday basis and with a good scalping rally in the last hour,
closed at 1604.86. The QQQs went from 39.31 to 40.25. The SPX made a lower low,
taking out the previous 1168 number as it hit 1165.54 intraday, closing at
1171.65, which is right at the .618 1171 retracement to the 1082 low.

With all of the hype
regarding earnings warnings and layoffs, there has been very structured movement
at alert zones, which has been great for short-term traders — long, short, or
hopefully both for those of you that are able to transcend your opinions. Both
the SPX and NDX rallied from the .50 retracement zones and were stopped cold at their down trendlines and 50-day EMAs. You had the buy alert and expected resistance zone in advance. During this run, the SPX ran from 1203-1240, or
+3.1%. The NDX gained 12% to 1865. The next move down took both indexes down to
their .618 retracement zones and a short-term oversold condition. The SPX
rallied from this 1171 .618 level to 1225, which was the downtrend line and
50-day EMA resistance. Actual low — 1168.46. The
NDX also rallied from this .618 zone, gaining 11.4% before the current decline.
You were told that the NDX would meet the sellers at the 1790-1800 level, which
was the downtrend line and 50-day EMA. The actual high was 1783. Yesterday,
the NDX had an intraday low of 1580 before the last-hour rush to close at
1604.86. When you just look at the numbers and get past the hype, you see the
very structured movement at alert zones.

This week is a price and
time cycle which takes us into another low zone in conjunction with the
end-of-month and new-money investment carryover into the first few days of
August. Is that automatic? Of course not. Is it a high probability based on
historical? Yes, it is. The .786 level on the NDX is 1504, and for the SPX it is
1131. In yesterday’s selling, there were some who started to scale long into the
QQQs, some bought QQQs outright, others bought QQQs combined with puts or just
longer-term calls. There were others that wanted to buy the index at a discount,
so they bought QQQs, sold cash-secured puts and also calls, out six months on
both. Some did simple covered call writes. You get the drift. Everyone has a
different risk level and a different strategy, but sooner or later, you must
anticipate and make a decision. That’s what it’s all about. They don’t ring the
bell that it’s all clear, folks.

(September
Futures)

Fair Value

Buy

Sell

4.95

6.15

3.65

Stocks
Today

The desired path for the
indexes would be a flashdance down that takes the NDX or SPX closer to their
.786 levels. There is a boatload of cash on the sidelines that the Generals are
itching to put to work and just looking for an excuse, as we have recently seen
in the aborted rallies. Yesterday, I thought that the Semis hung tight the best
before and after the afternoon knife down. So, we will start with them.

Shorts: Because of the
zone we are in and cycle time, stay with the the QQQs, SPYs and DIAs for any
continuation shorts because there can be a sharp reversal to the upside and the
market is easier to read.

Have a good trading day.

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

Five-minute chart of
Tuesday’s NYSE TICKS

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Heads Up…Again

BUY THE FEAR, SELL THE GREED

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