Lucky Seven?

April 30, 2002
Kevin Haggerty

Maybe
today will be lucky seven after
six straight down days for the SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) which closed at 1065.45, or
-1.0% for the day, and pushing the 1061 .50 retracement level to the September
low. The SPX is down -9.4% in 28 days, which slightly exceeds the last leg down
from 1177 to 1074, which was followed by a 9.0% rally to the last swing point
high of 1174. An oversold rally back to the 200-day EMA of 1147 would be +7.8%.
The Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) was -0.9%
yesterday, while the NDX
(
$NDX.X |
Quote |
Chart |
News |
PowerRating) was only -0.3%, taking a day off to
rest from its 20% decline over the past 34 days.

Yesterday’s NYSE volume
was the lightest of the past five days at 1.264 billion, volume ratio of 25, and
breadth -326. The Nasdaq volume was also the lowest of the past five days at 1.8
billion, with a volume ratio of 37. The technical oversold condition is obvious,
as is the lack of desire by the Generals to throw some money at the market.
The month ends today, and I would be
surprised if anything significant occurs regarding volume, but a technical
reflex is likely.

From a sector standpoint,
the
(
$SOX.X |
Quote |
Chart |
News |
PowerRating) had a marginal gain of +0.4%, but some stocks, like
(
KLAC |
Quote |
Chart |
News |
PowerRating), had a decent day. It was “see ya later, telecom index,”
which was down -4.4%, and the early debate there is who survives. The
(
BBH |
Quote |
Chart |
News |
PowerRating)s
are now interesting again, as the last leg down to 98.05 has slightly exceeded
the previous leg down from 141 to 112. By breaking the 101.31 September 21 low,
it activates a potential RST buy pattern. The BBHs are now 21% below their
200-day EMA. Prior seminar attendees should be cognizant of the filters for
entry. Also, check for the individual biotech stocks that are setting up and
decide on an options strategy to use so as to mitigate company-specific risk
from any news announcements.

As I have mentioned
before, there is more down to go after any significant oversold reflex. The
retest of the September lows is in full progress, as the
(
QQQ |
Quote |
Chart |
News |
PowerRating)s hit the .786
retracement level yesterday, with its 30.57 low. There are some interesting
covered combos using the December ’02 options, which at worst case have you
owning the NDX at 1030 if the QQQs are put to you 25. And also, the return is
17% over eight months by being very conservative on the strike price of the call
sale.

There are some that might
want to scale into positions using a one-unit, two-unit, three-unit approach for
the covered combos, which would give you a significantly lower equivalent NDX
cost if you completed all transactions. These are things you think about for
long-term positioning in the market at significantly low levels, but are
extremely concerned about near-term downside and reluctant to own anything naked
at these levels. You give up some return for owning the NDX at a discount from
current levels, but you can sleep a lot better. Options strategies should only
be utilized by individuals with the proper education and understanding of the
risks involved.

The VIX had another
wide-range bar up yesterday, closing at 26.11, which is a top-of-the-range
close, and right at its 200-day EMA of 26.48. Unless it puts in a reversal day,
there is nothing that says it can’t surge higher before the fear rubber band is
overdone. There are green lights on for the CVR 3 and the CVR 6.

Stocks
Today

Other stocks that set up
include
(
MYG |
Quote |
Chart |
News |
PowerRating).

The small-cap proxy
(
IJR |
Quote |
Chart |
News |
PowerRating).

Have a good trading day.

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

Five-minute chart of
Monday’s NYSE TICKS

Lucky Seven?

BUY THE FEAR, SELL THE GREED

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