Lessons from Yesterday’s QQQ Five-Minute Chart

• December 14, 1999
• Kevin Haggerty

The S&P 500
cash and the Dow 30 finished slightly negative for the session, but
the NDX once again led the herd mentality for techs and Internets, 
finishing +40 on the day. The breadth was negative at -818 advances minus
decliners, and the volume ratio was negative, with 555 million down out of a
total of 975 million shares that traded yesterday. Some key
big stocks did well such as Microsoft, Cisco, EMC, and AOL, but that’s certainly
no surprise to us.
The retail sector excelled, led by two
key portfolio favorites, Wal-Mart, + 4 1/4, and Home Depot, + 3 1/2.  
Both these stocks will continue to be marked up into the year-end, as we
discussed last week. Financials,  drugs and energies were red all
day. 

“Again, we
are in the 4-letter numbers (ticker symbols). These are the things going
up 15%, 18% a day.”
For your trading reference library that
I am trying to help you build: Save the five-minute chart on the QQQ’s
from yesterday. The QQQ’s presented an excellent opening reversal and breakout
to new intraday highs early in the game yesterday. It was a simple continuation
entry that led to a multipoint move. The QQQ’s retraced less than .38 of that
move,  to 160 3/4 after the early morning trend up; and then traded down
again to 150 3/4 in the lunchtime countertrend. But come 1:00, it crossed the
20-period EMA and traded up to 162 11/16. It actually formed a double bottom
before starting its afternoon trend to another new high. See the chart and the
text that we’ll have posted on the site today.
The SPY’s (Spiders) and DIA’s (Diamonds) left us with
inside days going into today’s action. Be ready to play the reversals, if they
take out yesterday’s low and/or high. If they break above yesterday’s high, take
your second entry. But if they reverse that high, get short as that may be an
attack on yesterday’s lows. That seems to be the game these days. The
opposite is true if they start with the lows
first.    
Maybe the Generals will surprise
us, and will create an uptrend day that the futures gang can’t play
with. We don’t get many of those one-way trend days anymore. Bottom
line is to plan your strategy, regardless of time frame. If you’re a position
trader, take advantage of pullback entries in the strongest stocks, and go with
it as a position trade, with money stops, or in conjunction with an option
strategy.
Yesterday was the sixth day in a row
that either the open or the close was within the daily range of the wide-range
bar breakout to new highs on Dec. 3. There are many
options players that will play this by buying straddles on the S&P 500, and
then lift a leg in the direction of the move which is sure to come soon,
especially with triple-witch this week.

Program
Trading NumbersBuySellFair
Value20.7518.6519.75
Pattern Setups
 
Again, we are in the 4-letter numbers.
Those are the things that are going up 15%, 18% in a day. If you look at it
yesterday, that’s all you see. Pattern setups for today include Applied Micro
Circuits [AMCC>AMCC], Lam Research [LRCX>LRCX], Vignette
[VIGN>VIGN], Legato [LGTO>LGTO], EchoStar [DISH>DISH], Nextel, an old
favorite [NXTL>NXTL], RedBack [RBAK>RBAK], Sycamore [SCMR>SCMR], and
again today, Cisco [CSCO>CSCO] and Microsoft [MSFT>MSFT]. Microsoft
is within a very small distance of its July high.  And of course we have
the negative correlation to Microsoft – short the Justice
Department.  
Have a good trading day, and be prepared
for some volatility.   
 

1. The QQQ’s opened at 159.26 and traded
down to 158.56, finding support at the 60-period
EMA.                                                                      

 2. Breakout above opening range,
opening reversal, crossing of 20-period EMA, and the first breakout to inter-day
highs.