Here’s Where The Best Daytrading Situations Come From

September 19, 2003
Kevin Haggerty

What Thursday’s Action Tells You

The major sectors were all green, led by the
brokers, +3.4%, and the banks +2.7%. The other sectors were market performers in
line with the SPX and Dow, while the
(
PPH |
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PowerRating), +0.2%, and
(
RTH |
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PowerRating) +0.9%
underperformed. In addition to the institutional buying yesterday, there were
more than a few option expiration-related buy programs, and we might see some
more today, which is expiration Friday.

Going against the grain yesterday was
(
KLAC |
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PowerRating)
-1.1% on double its average volume, and
(
AMAT |
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PowerRating) -1.6% on 155% more than its
average volume. They have had recent press on overvaluation, etc., and are just
too far ahead of earnings reality. For example, KLAC has advanced 137% from its
October low of 25.16 to 59.57 on Aug. 29.

From a daytrading standpoint, one could care less
because when the Generals are active in a stock, it creates opportunity. Is it
going down or up from here? Don’t care. But I do know it closed at 56.77, right
on its 56.44 20-day EMA on a flag retracement from the 59.57 high, and the
Generals are involved as evidenced by the increase in volume, so KLAC is a focus
stock today in either direction, depending on which Generals show up and get the
upper hand. Remember, the best daytrading situations come from the best daily
chart setups, especially around inflection points where direction is most often
resolved.

For Active Traders

There was an excellent SPX trade-through entry
yesterday above 1027 from Wednesday’s closing range Slim Jim. I have included
the SPX five-minute chart today which highlights the entry. As you can see, the
opening bar (1) came out of the range, but went back into the range. The second
entry (2) proved to be a moonshot as the SPX didn’t look back. The chart just
shows the move to 1033.70 by the 10:35 a.m. bar, but with hardly a pullback,
continued up to the 1040.18 intraday high. Net net, a basic Slim Jim combined
with a closing range breakout became a moonshot to new rally highs. You have to
take the trade, however, to participate. Duration and extent can’t be known in
advance. After the trade entry, it’s just a question of how you managed the
trade yesterday.

I have also included the
(
IBM |
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Chart |
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PowerRating) chart, which
was an excellent trade that you were prepared to take. IBM hit 90.46 on the
second bar, testing our previous 90.40 entry level. It formed an inside-bar
reversal pattern. Entry was on the fourth bar above 90.65. It ran to 91.90 by
10:35 a.m., but after just a two-bar pullback, ran up to an intraday high of
92.43 by the 11:45 a.m. bar (not shown). This is a trade that you were prepared
for in advance, so hopefully you took it.

Today’s Action

For today, which is quarterly option expiration,
daytraders are just pawns in the game, and to me, that means to concentrate on
the major indices and HOLDRs as the primary approach. Next, I like to focus on
stocks that are the most up/down in the first 15 to 30 minutes and look for
stock setups at volatility band levels and possibly in conjunction with
inflection points. Another focus would be on stocks that have broken out of
trading ranges the last two to three days and have retraced at least 50% of that
breakout range, whether it’s just yesterday or the past three days’ range.

Have a good trading day and have a great weekend,

Kevin Haggerty

Here’s Where The Best Daytrading Situations Come From

BUY THE FEAR, SELL THE GREED

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