Make It And Trade It

December 5, 2000
Kevin Haggerty

The
Nasdaq 100 gapped open to 2573, then a quick pullback to
2541 all on the first bar, then ran to 2590 on the third bar before the contra
move started which took the index down 115 points or 4.4% to what proved to be
the intraday low. This of course very carefully took out the previous day’s low
and then reversed it to the upside.

The rally started on the
10:35 a.m. bar, which is the fourth day in succession that significant runs have
started between 10:30 a.m. and 11:00 a.m. Good entry was the reversal of
Friday’s 2499.39 low, as the 2496 .618 RT proved to be a pivot point again.

The rally carried 140
points or 5.6% to 2615, which was the intraday high. From
the 2615 high on the 2:35 p.m. bar, it fell off to 2549 by 3:30 p.m. and closed
at 2554. FYI, the 5.6% rally to
2615 was exactly a 1.27 extension of the 4.4% contra move down. It
was a 1.22 extension in points and a 1.27 in percent. Always look at both.

Trading points to
remember:

Contra move after
gap

Reversal of previous
day’s low

Key Fib RT level as a
support pivot point

Fib extension ending
moveÂ

There is nothing
subjective about those points. Just learn them.

While the empty suits
talked about growth and soft landings, the Generals had sold the basics down
hard since January. Now the suits are talking recession, the Generals have
started buying the basics with some meaning in October, just as the suits were
giving us their sage advice and forecasts.Â

By the time the
government says “recession,” the market will be well into a good move.
The XLB is now up 23% from its 10/18 low of 17. Yes, we have had prior moves in
the basics, but this one has decent volume and has recrossed the 200 as the
Generals are involved, so you can quantify it. If
their perception is soft, then the techs have to be watched closely, especially
the semis, for position entry.

Yes, you might have to
make a decision without the perfect technical picture that many market writers
keep espousing.

Trading Plan for Today

Calculate volatility
bands, expecting gap-up open, as the S&P futures are up 12 and the NDX
futures +73 as I look at the screen at 7:15 a.m. ET. Look to fade the gap if
there is enough of a move.

Be prepared for
pullback entry resulting from contra move as professionals take back shorts.

Observe what acts
best on the pullback and be ready to enter long for first trend move of the
day.

Calculate the 1.27
and 1.618 extensions of the contra move down after the gap opening. It will
be a good spot to take long profits on at least half of your position.

If the rally then
fades at the extension, calculate the Fib RT levels between the contra move
low and the extension/first intraday high. For the NDX, use the 11/30 2573
high as your first pivot point, then yesterday’s high of 2615 as the second,
and a 10-day moving average of 2635 as the third. It will probably be after a pullback-and-go move. The S&P 500 is more interesting, as it closed
above the midpoint in a narrow-range Dynamite Triangle pattern. For
those that attended my seminar, it sets up as an RST buy above 1341.91 which
is its high of the low day. I would take early entry above 1332, which is
the breakout of the narrow-range pattern with a tight stop below 1310. If it
fails below 1310, be ready to play a pattern failure as it reverses to the
upside, similar to second entry moves.

Disregard all the
subjective dribble from the media and the many market writing experts that
need nirvana before committing capital.

face=”arial, helvetica”>(December Futures)
Fair Value	size=2>Buy	size=2>Sell
3.00	4.20	1.60

Pattern
Setups

Have a good trading day.

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Make It And Trade It

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