Last Star To Fall

October 26, 2000
Kevin Haggerty

I asked someone yesterday
if they knew a group or sector that hasn’t imploded yet, and he said,
“Drugs.” Excuse me, but they crashed from April 1999 to March of this
year as the
(
DRG |
Quote |
Chart |
News |
PowerRating) lost 31% from 472 to 291, but has now advanced 47% from
that March low. The cyclicals blew
up in April and May of 1999 and are now stirring again. Biotech, you say?Â

After a parabolic ascent,
the
(
BTK |
Quote |
Chart |
News |
PowerRating) hit its high at 806 on 3/7 this year and by 4/17 had declined 57%
to 380. After all the players said, “Make it go away,” and cleansed
their biotech positions, what happened? They were pulled from the recycling bin
and rallied to a new high of 812 on 9/25, a nice 114% trip.

During 1999, the S&P
500 was up 19%-20% due to biotech, telecommunications and technology, while the
rest of the market was mostly negative as a narrow group of leaders kept the
averages rolling. The leader in technology was the semiconductors, but they
crashed and burned from a 1362
(
SOX |
Quote |
Chart |
News |
PowerRating) top on 3/10 of this year to a 602 low
on 10/18. That was your basic 55% decline.Â

In just four days, the SOX
has rallied 33% vs. the seven-month 55% decline. Another example is
(
TXN |
Quote |
Chart |
News |
PowerRating)
which declined 65% over that timeframe from 99 3/4 to 35, but rallied 47% from
35 to 51.5 in the same four days. Looking
at a daily chart it looks like nothing, but you must remember that it’s a
percentage gain with your money and timing in the level is key.

Wall Street is always in a
recycling mode as the brokerage firms are always selling, and that means they
have to prime the pumps so you and I will buy. That’s why you don’t get sell
recommendations and why investment banking clients always seem to be strong
buys.

This fiber optic implosion
will run its course in due time with some very sharp rallies along the way. It
has always amazed me how the gong goes off and the elephants all try to get
through the door at the same time.
(
AMCC |
Quote |
Chart |
News |
PowerRating), which advanced 156% this year,
is down 37% in three days.
(
JNPR |
Quote |
Chart |
News |
PowerRating) is another example that had a run this
year from 56.75 to 244.5 or +331%, and yesterday’s low was 189 7/8, -22% from
the high.

I don’t know how much
downside this fiber flap has, but if you look to the semis as an example, it
seems like there is certainly more room. These stocks and some of the other
chosen ones will be excellent daytrading stocks during this extreme volatility
period.

You have heard me chirping
for the past year about using options strategies for position trading,
especially with the techs. After what you have seen so far from the biotechs and
semi implosion prior to yesterday’s panic, if you still don’t believe then I’ll
sell you ice in February!

The Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating)
took the big 7.3% hit yesterday, as all of the key fiber and related stocks are
in the index and exaggerated the move. The
S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating) was off 2.4%, which surprised me some as I thought the
implosion would have forced a bigger downside. After
opening down 3.2% yesterday, the NDX had a good contra rally of +2.8% before the
index sold down from 10:30 a.m. into the close.

With all that carnage in
Instinet, it was a pleasant surprise to get trade-through short entry in
(
BRCM |
Quote |
Chart |
News |
PowerRating) below Wednesday’s 234.5 low and again coming out of a perfect 14-bar
Slim Jim below 225. Keep
scrolling. The payoff is rewarding.

face=”arial, helvetica”>(December Futures)
Fair Value	size=2>Buy	size=2>Sell
11.70	12.90	10.50

Pattern
Setups

Take the biggest losers from
yesterday. Put them in your five-minute chart window and take what they give
you, long, short or both.Â

My list would include (and save this
list):Â

Have a good trading day and keep your
helmets on!

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Last Star To Fall

BUY THE FEAR, SELL THE GREED

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