Helmet Time

  • October 15, 1999
  • Kevin Haggerty

Helmet Time I couldn’t wait to get this commentary with all the action going on this morning. After being down around 17 points for the first half of yesterday’s session, the S&P 500 cash index rallied from a low of 1267.75 (sounds like a familiar number, doesn’t it?) to close at the top of the range at 1283.40.

Don’t get discouraged if every day is not a pure trend day
It looked like a successful test or defense of the recent lows. There were some excellent continuation setups in the high relative strength stocks, just waiting for any institutional buying and/or program acceleration in today’s session. Not so. I turned on Bloomberg at 5:30 AM ET this morning and heard that Mr. G gave us a Halloween speech combined with a reunion speech of the Oct. 1987 crash. The S&P futures were down 13 at the time (and I think they said they had rallied somewhat). It doesn’t take anything to move the S&Ps during those manipulation hours.

With expiration today, Mr. G’s speech, and a nervous market near its trend lows, it certainly sets up a bear raid possibility of major proportions by some major hedge funds or program traders doing some aggressive legging in on program trades where they have a set spread to meet with their customers. So instead of looking for those continuation entries early today, we have to adjust our thinking to trap doors, 1-2-3 moves after a downtrend, and looking for stocks that get down to the extreme volatility bands, which often produce good entry levels, like in GE yesterday.



Figure 1. CMGI (CMGI), five-minute bar. Source: IQC.com.

Yesterday, during the morning weakness, the Internets were acting much better than the market and gave several excellent entries when the market rallied. CMGI (Figure 1) was a clean 1-2-3 entry, and AOL (Figure 2) had an early opening reversal and two dynamite triangles after that. (IBM also gave a good 1-2-3 entry at the 105 1/2-5/8 level.) Save the five-minute charts on these for future reference.



Figure 2. America Online (AOL), five-minute bar. Source: IQC.com.

Don’t get discouraged if every day is not a pure trend day. Load those five-minute charts, look for those stocks doing better than the market and take the kind of clear-cut entries that AOL, CMGI and IBM gave yesterday. The game plan today is to let them push the S&Ps wherever the overreaction takes it and don’t pick any bottoms. There will probably be at least one good counter-rally, and if they really blow the stops out to new lows, we could come back fast and hard at the end of the day. I don’t know that they can send in the Turk with the option expiration.

Target Stocks Of The Day Stocks that went out last night with continuation setups are America Online [AOL>AOL], CMGI [CMGI>CMGI], Adobe [ADBE>ADBE], Comverse Technology [CMVT>CMVT], Qualcomm [QCOM>QCOM] and JDS Uniphase [JDSU>JDSU]. These are all very volatile, high-beta, high dollar-price, high relative strength stocks that will certainly get hit as we sell off, more because of retail selling and the disappearance of market makers than because of major institutional selling, because there’s nobody to sell to in the early part of a sell-off like this. But these stocks might see some good counter-trades after the emotion subsides.



Program Trading Numbers
BuySellFair Value
11.408.059.75
Other stocks that set up are Wal Mart [WMT>WMT], Tandy [TAN>TAN], Home Depot [HD>HD] and MGIC Investment [MTG>MTG]

I have no idea why Greenspan gave that speech, with the market at these levels. He’s a smart individual; there must be a reason. Keep your helmets on and your stops tight. When you react, take your profits fast. Downside entries are much safer in the SPYs, QQQs and DIAs, because you’ll be lucky to get an up tick in a stock on a day like today.

If you want to learn more about Kevin Haggerty’s trading strategies, click on the link below to go to his series of tutorial articles.