Inflection Points

February 1, 2001
Kevin Haggerty

The
Federal Reserve circus and the
media hype was true to form. From 2:15 p.m. to 2:30 p.m., the S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating)
had travel range of just over 15 points between the high of 1383.37 on the 2:20
p.m. bar to the 1368.21 low on the 2:30 p.m. bar.Â

After a brief rally to
1376, it sold off to close at 1366. The .618 RT to the .786 zone is the
short-term ceiling after the rally from 1254. That shouldn’t surprise you as you
had it framed and were on alert, plus the 200-day EMA sits right above at 1390
vs. yesterday’s high of 1383. It’s a level that you expect things to struggle.
The Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) had the more
volatile drill, dropping 4.5% from the 2:20 p.m. bar high of 2717 to a 2593
close.

The headlines today are
interesting, aside from the fact that the entire world is getting laid off,
according to some of the media. Just to quote a few I read this morning:

“Fed Cuts Rates
as 1.4% Rise in GDP All But Ends Hope for Soft Landing.” (That was the
bold headline.)

“Key Business
Barometer Plummets to 18-Year Low.”

“Economy Slowed
Sharply: Fourth-Quarter Data Shows Slowest Growth in 5 1/2 Years.”

Etc., etc., etc.

The other side to that is
stocks like
(
AA |
Quote |
Chart |
News |
PowerRating) and
(
IP |
Quote |
Chart |
News |
PowerRating) topped in early 2000 and have already rallied
back up to the .618 retracement for AA and the .50 retracement for IP. The
cyclical index, which is the CYC, topped in May of 1999 and has now retraced
.618 of that move. Following these
cyclical advances, we got 50%-100% advances in the Semis, amidst all of the
negative hype.Â

The Semis led the NDX to
its latest 33% rally. The SOX’s high yesterday was 763.33,
which is right at its 30-week EMA ofÂ 765. The 200-day EMA is just 4% above
at 796. The Semi rally is eight weeks old and the index has retraced to the .38
level, framed from the 8/31 1154.30 high to the 11/30 517 low. You have plenty
of convergence to put you on alert. Net, Net, I can’t urge you enough to follow
the money and stay away from the hype as it is always way after the fact.

When the techs headed
south yesterday, the energies and drugs were bright green and if you look at
your S&P 500 screen this morning, you see green across the retail sector and
the wide-range bars up for the rails.

For today, the trading plan
starts with the 10-bar congestion of the NDX right at the 10, 20 and 50-day EMAs.Â
A break below yesterday’s low of 2591 is first short entry, then below the
50-day EMA at 2576. The knife gets sharper below the 1/26 minor low of 2526. The
top of the congestion is the 2740 level. Frame your retracement downside alerts
from 2772 to 2087. Do the same thing for the SPX, as yesterday’s low was the
first inflection point for the downside.

(March
Futures)

Fair Value

Buy

Sell

7.45

Â 8.75Â

Â 6.15Â

Pattern
Setups

On
the short side, of course you’re using the QQQs for the break to the downside
for the NDX out of congestion.Â

You have a little something
whichever way the game goes today but keep very, very tight stops. There’s a
tremendous amount of volatility which is obvious. Have a good trading day.

Inflection Points

BUY THE FEAR, SELL THE GREED

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