Manage Your Risk

  • November 29, 2000
  • Kevin Haggerty

The NDX
futures action was fast and furious early
on yesterday, as they were down big pre-opening to 2740 at 8:00 a.m. From there they rallied
+2.1% to 2798, knifed down 1.5% to 2755, then made a very common geometric move of
+2.2% to 2815. The second leg up to 2815 was equal to the first, which very often
happens in a parallel-movement pattern. 


The
(
QQQ |
Quote |
Chart |
News |
PowerRating)s
had traded below Monday’s 68.75 low to 68.5, then reversed that low up to 69.85.
If you caught that, nice trade, but you wouldn’t have unless you were focused on
the Qs. From there, it was straight down to 66.56 after trading below both the
68 15/16 opening and the 68 3/4 low. If you didn’t catch either one of those
trades, you definitely weren’t focused on the Qs. There were some other excellent
Opening Reversals down, like
(
ARBA |
Quote |
Chart |
News |
PowerRating) which opened at 68.5 and reversed down
to 60 5/8.  


Starting at 12:30 p.m. the
NDX tried to rally as the Qs ran from 66.56 to 68 3/16 by 2:00 p.m., but then
Gore opened his mouth and the rally was over and the NDX and S&P 500 knifed
down, as the QQQs made a new minor low at 65.5.


There is no question that
it is a difficult tape but the basic daytrading tactics are working just fine
but the moves are faster and not as extended, so you must manage the trade and
take profits sooner on at least half your position. I shouldn’t have to remind
you of the necessary tight stops and reduction of your normal position size. 


The futures are controlling
the averages more than ever — and that means extreme volatility. Yesterday’s afternoon
Gore
slide took the NDX 100,  MSH and the SOX to new minor lows. The Generals continue to
hide in the drugs and utilities. The chosen ones continued
to purge with 10 of the 25 down 10% or more, led by
(
BRCD |
Quote |
Chart |
News |
PowerRating) -14.7% and
(
JNPR |
Quote |
Chart |
News |
PowerRating)
-14.3%.


For those of you that have
been with TradingMarkets.com since inception, you have heard me say on many
occasions that you
don’t take tech stocks home without puts or an option strategy. The
parabolic rise and easy money knocked that religion out of many
traders/investors. There doesn’t seem to be much rhetoric about New Economy any
more because the simple fact is that we are currently in another one of the Tech
Crashes that are inevitable and always will be, regardless of what you hear from
those in the business that weren’t even around for the ’95 crash, let alone
anything before that.


Using the semis as an
example and
(
MU |
Quote |
Chart |
News |
PowerRating) as the example stock, I will outline the extent of the crashes since 1995
and where we are now.


Micron Technology
(
MU |
Quote |
Chart |
News |
PowerRating) crashes in 1995, 1997, 1999 and 2000.

Year High   
Date

To

 Low    
Date		 Duration Decline
1995 47.375  
9/95		    8.31      
7/96		 10 months -82%
1997 30        
8/97		   11         
11/97		 3 months -63%
1999 40.25    
2/99		   17
1/8      5/99		 3.5 months -58%
2000 97.50    
7/00		   28         
10/00		 5 months so far -71%

It is significant to note
that the .786 retracement from the 8.31 1996 low to the 97.50 7/00 high is 27.40 vs. the
current low of 28. Coincidence? Yes, it is and one that keeps repeating! 


MU
rallied 52% from 28 to a 42.50 high on Monday, and closed yesterday at 33.50. The .618 RT between 42.50 and 28 is 33.54 while the .786 RT is 31.10. If
you believe MU will remain in business and you really are a buy-and-hold
investor (which no one is when they should be) then you have an interesting
decision. I suggest you review your option LEAP strategies. I
have used MU as an example because both the Generals and the hedge funds love to
play it.














face=”arial, helvetica”>(December Futures)


Fair
Value

size=2>Buy

size=2>Sell

5.00
6.20

3.80


Pattern
Setups


In the chosen ones, obviously stay on
your intraday charts, with Opening Reversals, Reversals of Lows, Trap Doors
and Continuation Shorts. Right
now the screen is green, so it looks like maybe we’ll get a little pop.


The following stocks set up from the
daily charts:
(
BAX |
Quote |
Chart |
News |
PowerRating),
(
SIAL |
Quote |
Chart |
News |
PowerRating),
(
AFL |
Quote |
Chart |
News |
PowerRating),
(
FITB |
Quote |
Chart |
News |
PowerRating),
(
NTRS |
Quote |
Chart |
News |
PowerRating),
(
BCR |
Quote |
Chart |
News |
PowerRating),
(
CLX |
Quote |
Chart |
News |
PowerRating),
(
LLY |
Quote |
Chart |
News |
PowerRating) and
(
UNP |
Quote |
Chart |
News |
PowerRating). Also
(
EMC |
Quote |
Chart |
News |
PowerRating) and
(
CIEN |
Quote |
Chart |
News |
PowerRating) can
be played around the 200-day EMA as a pivot point.


For your information, review my Nov.
24 commentary for alert levels on the NDX.


Have a great trading day.