Heads/Tails

March 27, 2001
Kevin Haggerty

Yesterday
the S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating) finished +1.1%, the Dow +1.9%, with the Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating)
-1.6%. Total volume was 1.1 billion shares, volume ratio of 72 and advancers
over decliners by +926. Institutional blocks were light at 21,888, as was the
total volume relative to any sustained advance from an oversold level. Bottom
line is: I didn’t like the action and never do when I see sell-offs into the
close like the NDX and SPX yesterday.

Here’s my thought process
for today’s trading plan. The NDX has traded geometrically since the rally last
Thursday, from the 1582 low to Friday’s 1755 high, or +10.9%. There was a 1,2,3
continuation move above 1648 on the way up so that now becomes minor support. On
Friday after the early up, it retraced .50 of the move from 1582. The .50
retracement was 1688 and it hit 1667.Â

From there, it ran to 1737
early yesterday, which is a .786 retracement to the 1755 high from the 1667 low.
It sold off late to close at 1677. There is excellent convergence at the next
level which is the .618 at 1648. This is also the 1.27 extension of the
1667-1737 move, while 1649 is an equal extension of the 1755-1667 leg. 1648 is
also minor support from Thursday’s 1,2,3 continuation move. Below that is the
.786 level at 1619.

So for this morning, if you
check the closing patterns in the NDX from yesterday, I see early short entry
below 1667.80 in the NDX, for which you would use the Qs or related NDX 100
stocks with similar entries. After that, we focus on a possible reversal pattern
at the .618 to .786 retracement zones. If you get one, great. If not, you are
still short.

Looking at the SPX, we see
a slightly different picture as it hasn’t retraced yet like the NDX. It has run
+7.3% from last Thursday’s 1081 low to yesterday’s 1160 high. It had a
tight-closing-range pattern between 1152.75 and 1147. Framing the 1081-1160
move, you get a .38 RT level down at 1130; a .50
retracement at 1120 and a .618 at 1111. That tells us there is room for a good
intraday short play if the SPX trades below 1147 — and
it closed at 1152.69.

For the same reasons on the
Dow, I see early short entry below 9650, and then again below 9633. You
do the math on the potential retracement zones. This is not meant to be negative
— just realistic and prepared. You all know where yesterday’s highs are on the
SPX, Dow and related stocks, so trade-through continuation entries are obvious.

Save your five-minute
charts for the NDX for the past two days and frame it the same as I described
above.

(June
Futures)

Fair Value

Buy

Sell

9.55

.11.00Â

Â 7.85Â

Pattern
Setups

The
volume is there. For example, MU pulled back to just below its 200-day EMA of
46.22, then recrossed it to close at 46.87. The 200-day is now in play as a
pivot point both ways. If you look at your five-minute charts, you see that
today’s early long entry is above 46.87. Do the same exercise with the rest of
yesterday’s list to find both long and short setups.