Hoping For An Overreaction

July 18, 2000
Kevin Haggerty

Steady
up yesterday and it played the game above the 20-period EMA for
most of the day until the 2:25 p.m. bar on your five-minute charts when the
index sold off 7 points to close at 1510.50, just above Friday’s 1510 close. The
S&P 500 did put in a higher high and higher low, therefore maintaining its
upward direction. It was a narrow-spread day at 12.05 points and closed below
its midpoint of 1511.27.Â Â Â Â Â Â

The Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating)
is right in the .618 zone of 4083 and hit a high of 4089 before closing at 4062,
ending up +0.5% and the direction remains up with a higher high and a higher low
in addition to a close above the midpoint. Total volume dropped to 906 million,
its lowest since the 829 million last Monday, so I guess it must be the Monday
Blues. The volume ratio and breadth went negative for the first day in two
weeks.

There is every reason to
stall as the NDX 100 is now up 41% from the 2897 low to yesterday’s 4089 high,
which is 37 days. If you remember, we topped on March 24, bottomed on May 24 and
are working on an eight-week cycle, so this rally is probably long in the tooth.
Obviously, I guess if you’re into numbers on an annualized basis, you would
consider that extreme.Â

I don’t hear any of the
empty suits talking about whether or not we are in a “summer rally.”
Now, it’s the “new bull market” they refer to, due to the soft
landing. Right. That is certainly a red alert in conjunction with the
retracement zone.Â

This morning, you have
the CPI which I call “Can President Influence the election?” and you
have Intel
(
INTC |
Quote |
Chart |
News |
PowerRating), Microsoft
(
MSFT |
Quote |
Chart |
News |
PowerRating) and Apple
(
AAPL |
Quote |
Chart |
News |
PowerRating) on the
earnings front. Intel, trading to new highs, has obviously anticipated good news
while Microsoft has drawn a line due to uncertainty. I am hoping for a perceived
negative and over-reaction that would send Microsoft down to the mid-60s range
for another great buying opportunity. Thank
you, Justice Department.

In response to the many
emails I have received regarding the strategies I have previously outlined in a
Trading Lesson or Pattern and what I had included in our book, Trading Guide
to the Markets, which you should all have by now, I will enumerate them
here. In order of occurrence, it would be Fading the Open Using Volatility
Bands, then Opening Reversals and Trap Doors, followed by Flip Tops.Â

Once that first-hour
action occurs, and the Generals decide what they really want to do, you should
be looking for Slim Jims, which I presented in the book, and Volcanoes which are
rising wedges, explained at my seminar. The breakouts from the Slim Jims and
Volcanoes would be the first consolidation breakout of the day which is usually
the best, but is closely rivaled by a Slim Jim after 2:00 p.m. The
late-afternoon Slim Jim is often very powerful because when the Generals can’t
buy futures at fair value any more, they come in and buy the stocks and have to
complete by the end of the day in order to put the money to work. When you are
in an uptrending day and they come in with the completion orders, it is often
explosive and a multipoint move. Slim Jims are covered in my chapter in the
book. If you have any questions on these strategies, you can email me at kevin@westnet.com
and I will reply.Â

Yesterday, Sycamore
(
SCMR |
Quote |
Chart |
News |
PowerRating) exemplified a basic but highly effective continuation strategy. On
Friday, SCMR closed at 138 3/16 in the top of the range and just out of a
five-bar consolidation. That made it a continuation-trade candidate for Monday
on a move above Friday’s high of 140 3/16. Yesterday, SCMR opened at 140 5/16,
traded down to 138 15/16, then reversed the 140 3/16 opening for an opening
reversal, and also the 140 5/16 high, and ran to an intraday high of 150 13/16.
It doesn’t get any better than that for a daytrader.

(September Futures)

Fair
Value

Buy

Sell

14.90

16.05

13.80

Pattern Setups

Have a good trading day.

Hoping For An Overreaction

BUY THE FEAR, SELL THE GREED

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