Let Emotions Play Out

• March 4, 2002
• Kevin Haggerty

In Friday’s
text, I expected a reflex bounce, as
the NDX
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the re-buying of a percentage of the dogs the Generals blew out into month-end.
I also said that the option activity was extremely negative which would help
ignite any reflex bounce. Then I said that the
(
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lower boundary of the 3 1/2 month box, along with Intel’s
(
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chart. There were also other semi charts, like Qlogic
(
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confirmed the SMHs and INTC. It certainly looked as if the bears’ semi analyst
contingent was dominating the hype battle. With these charts, the shorts were
all over them, and many traders were very happy with their various shorts after
Thursday’s action. What I didn’t say in the text was that the reflex was going
to be a moonshot with a semi explosion. Maybe I should have checked and would
have seen that it was also a full moon. 

Needless to say, the
semis exploded as Novellus
(
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78% more than its average volume, in addition to the economic reports that came
out.
(
MXIM |
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(
KLAC |
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on +32% volume, with
(
AMAT |
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The squeeze in price was
highlighted more by QLGC at +16% on just 23% more volume and INTC +8.5% on just
18% above its average volume. They were reaching to extreme in price because
sellers were nowhere to be found. If you look at today’s NDX 100 screen, you
will also see many stocks that were price strong and volume light for the same
reasons. Suffice to say, the four tight closes on the SPX
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$SPX.X |
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resolved and the techs advanced, rather than Dow
(
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Techs like INTC,
(
IBM |
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(
MSFT |
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+2.6%. The SPX rose +2.3%, while the NDX finished +5.6%. The story, however, is
the
(
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lower, as I also had said in the previous text.

NYSE volume was only
slightly more than the last two days at 1.4 billion, a volume ratio of 77, with
breadth extremely positive at +1295. The NDX volume ratio was powerful at 86,
and the Nasdaq at 79. NYSE stocks trading above their 200-day EMA is now 62%.
This price explosion ignites greed and also forces money into the market by many
money managers that are long too much cash and are afraid of missing the train.
I, for one, will be surprised if the NDX .618 retracement to the September low
is the bottom without the Dow and SPX retracing more than the .38 that they have
so far. If that further retracement doesn’t happen, the next leg up would be
very strong, with just the .38 retracement.

The Nasdaq closed at
1802.74, right on the 1800 resistance. The SPX closed at 1131.78 vs. the .50
retracement level of 1130.34 and the 30-week EMA at 1136.94. On the Dow, after
the 246 point explosion, I see that the Dow volume was less than the previous
day, which was down 25 points. Very strange. 

Stocks
Today

Stay away from first
entry on any continuation longs. Let any opening reaction play out. The 3:35
p.m. surge on Friday was accelerated by programs, and it lifted the NDX 17
points, the SPX 7 points, and the Dow 60 points. This is more reason to stay
away from playing the longside on or near the opening. Let the emotions play
out.

Daily chart long setups
are
(
EXPE |
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(
FISV |
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(
GILD |
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IDPH |
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(
BAC |
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(
WFC |
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(
PX |
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(
DD |
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(
ADBE |
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(
INTU |
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(
USAI |
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(
MU |
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(
BRCM |
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(
DPMI |
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(
LTXX |
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(
MRVL |
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(
LRCX |
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PowerRating).

Any sustained move will
include the major brokerage stocks, so focus on them intraday, and also
defensive stocks like food and utilities for the shortside.

Have a good trading day.

Five-minute chart of
Friday’s SPX with 8-, 20-,
60- and 260-period
EMAs

Five-minute chart of
Friday’s NYSE TICKS