Momentum Stock Rally

September 8, 2000
Kevin Haggerty

We got
the reflex rally and the main
action was in the OTC stocks. The Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) advanced 3% with about
75% of its stocks advancing. The index recaptured 80% of Wednesday’s -3.7% day.
The S&P 500 gained 0.7%, retracing
70% of Wednesday’s -1.1%, but less than 50% of the S&P 500 stocks advanced.
This was also true of the OEX.

It is significant to note
that in yesterday’s rally the volume ratio was neutral, as was the advancers vs.
decliners, so the Generals did not exhibit any real buying pressure for the
overall market but focused on a smaller segment of stocks, primarily techs.
Well, that was yesterday — so what have
you done for me lately?

The first thing I did this
morning was to check all the advancing stocks and compare yesterday’s action to
Wednesday’s down day. How much of the decline did yesterday’s rally retrace?
What was the volume on the way back up vs. Wednesday’s down? And how did that
relate to the 30-day average daily volume? (If you use 50-day, that’s
fine.)Â

I look for the
top-of-the-range closes and, hopefully, expansion of range vs. Wednesday’s. I
then check to see whether the three-day pullback approached the 20- or 50-day
EMAs. Did it hold it? Or, if it penetrated it, did it cross to the upside and
close in the top of its range? The
tie-breaker is to then zero in on the big-spread stocks where the game is being
played.

For potential position
trades, I look at stocks like
(
BVSN |
Quote |
Chart |
News |
PowerRating) that has been recently advancing off a
rounded bottom on a substantial increase in volume, and might run crossing its
200-day EMA of 40.46. BVSN closed at 37 15/16 and is starting to get some noise
from some of the brokerage analysts. If it does run crossing the 200, you then
use that as a pivot-point stop, so the risk/reward
is high for the stock that has declined from 93 in March and has found some
support three different times at the 30 level.

There are many stocks with
similar three-day patterns today where you have at least two lower lows and
highs, plus an inside day with a close in the top of the range, or else just a
three-day pullback with lower lows and highs, also with the close in the top of
the range. There are also some
stocks that closed above Wednesday’s high, making up all of the loss day.
Therefore, there are many stocks to select from so we should select from the key
sectors because the rotation
changes daily, as stocks get too far ahead, or lag.

By doing this preparation
early each morning or after last night’s close, you are able to prepare your
trading plan so that you can put buy/stop/limit orders in for your selected
stocks. If you walk in at 9:25
a.m. and haven’t prepared this way, then if it’s an up day you go right to the
upside momentum stocks and look for the first consolidation to form and buy the
breakout to the first new intraday high. You will be more successful if you
incorporate both methods.

I will be covering this
process in more depth at the Las Vegas seminar in October.

face=”arial, helvetica”>(December Futures)
Fair Value	size=2>Buy	size=2>Sell
24.50	25.90	23.00

Pattern
Setups

In other position trades, the drugs
have seen some substantial volume come into them as the levels have held over
the last three days. I like
(
PFE |
Quote |
Chart |
News |
PowerRating) which is holding right at its 200-day
simple moving average.

Have a good trading day.

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Momentum Stock Rally

BUY THE FEAR, SELL THE GREED

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