Methodology Or Spontaneous, You Decide

March 13, 2003
Kevin Haggerty

After-hours trading is
not chart friendly in many individual stocks that can be pushed around on light
volume. In fact, after-hours trading is useless and never should have been
implemented. Remember when the exchanges and regulators wanted to give the
individual investors more time in the day to lose their money as they
anticipated a big volume increase, which, of course, meant money in the
exchanges’ pocket, not to mention their thoughts about bagging the public in
IPOs. Has anyone checked the Charles Schwab retail trade volume lately? Based on
the numbers, they could shut down trading at noon and it wouldn’t change
anything. It’s an institutional market, folks, and always will be. They have the
house edge, and it’s our job to find the games within the casino where we have
an edge.

That was evident
yesterday, as the afternoon SPX reversal gave us a 14 point rally from entry on
a 1,2,3 double bottom pattern above 790. The double bottom was 789, which was
also yesterday’s 1.0 volatility band and the 2.0 standard deviation on the
20-day 30-minute chart. 785 was the measured move down from the
head-and-shoulder pattern between 954 and 870. Yesterday’s upside 1.0 volatility
band was up at 814.73. Bottom line: It was a zone where you were on alert to
look for 1,2,3s or RST patterns as mentioned in yesterday’s commentary, so you
were prepared in advance.

I was pleased to see from
the e-mails that many of you played the short side out of the six-bar Flip Top
on your five-minute chart with entry below 798 on the 10:00 a.m. bar. (See
yesterday’s commentary.) That was a pattern entry at the most common reversal
time. Depending on how you managed a trade, there were a couple of continuation
short entries on the way to the 789 low.

It is always nice to get
a good reflex, but the world hasn’t changed after one day. Unless you have an
option strategy on, I imagine most hedge funds and traders wanted to get flat or
hedged out prior to this resolution/United Nations fiasco.

The SPX had already taken
out the 808 .786 retracement to the 769 October low on an intraday basis on Feb.
13, but closed at 817.37. Yesterday it hit a 789 low, and closed below it at
804.19, which took out the 808 magnet. After the +24% SPX rally to 954, and then
giving up initially all of it, new lows below 769 are a good probability without
any overt news. This current knife down has been super for the synthetic
straddles and enabled some excellent adjustments.

Have a good trading day.

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

Five-minute chart of
Wednesday’s NYSE TICKS

Methodology Or Spontaneous, You Decide

BUY THE FEAR, SELL THE GREED

Quick Links

Company Info

Contact

Company Resources