NDX Contra Play

November 28, 2000
Kevin Haggerty

On
Friday, the Nasdaq Composite finished +5.4%
which is the largest gain in 30 years for the day after Thanksgiving. That day
has been in the plus column for 12 straight years and has only missed three
times in 30 years, so I’d say that going into Turkey Day long is a
high-probability trade.

Yesterday, the big early up
in the NDX 100 futures turned south right after the opening. This down was led
by the semis with the SOX closing down -6.9% after gaining 8.8% on Friday.
The SMHs managed to open up +2.4% in
spite of the downgrade in
(
XLNX |
Quote |
Chart |
News |
PowerRating) and
(
ALTR |
Quote |
Chart |
News |
PowerRating) by Lehman and that was a
windfall for the specialist as he managed to gap them up in spite of the news.
The downgrade came at 8:40 a.m. — that’s why the opening was surprising.

The Bush euphoria, along
with Abby Cohen, enabled the S&P 500 and the Dow to finish positive, but the
1348.97 S&P 500 close is a far cry from the 1363 10:30 a.m. high. The 2:30
p.m. rally took the S&P 500 back up to 1360.39, but the knife decline from
3:30 p.m. to the close ended any thoughts of grandeur.

A bit of Christmas
retail-sales euphoria carried the RLX +5.1% while the BTK continued up another
day at +5.2%. All the Bush talk lifted the drugs to a +3% gain and more new
highs. How things have changed since March when the
(
MRK |
Quote |
Chart |
News |
PowerRating)s and
(
BMY |
Quote |
Chart |
News |
PowerRating)s of
the world were thrown away but have now advanced +83% and +68%, respectively. I
hope Abby Cohen keeps the pressure on as she attempts to regain the first
portfolio strategist ranking after being unceremoniously dumped to third in the
II ratings. That will be good for all of your 401Ks and IRAs going into year
end.

The volatility in the NDX
100 is excellent, but you must be prepared to outline your pivot points and
volatility bands so you can better trade what shows up on your intraday charts.
For example, in outlining the
(
QQQ |
Quote |
Chart |
News |
PowerRating)s for today, you have yesterday’s high
of 72.94 and low of 68.75. They closed at 69.56. With the NDX futures down
22 points at 2775 at 7:15 a.m., it looks like we will be in our low game
starting out.

The open is the first pivot
and then we are looking at yesterday’s low of 68.75. If you take a short below
the 68.75 low, be ready to go long if the 68.75 low is reversed to the upside,
assuming the dynamics are in your favor. The Friday low is 68.18 and that high
is 70.625. If the Qs go south first, then reverse the open, the first upside
pivot becomes 69.84, which is the level that the Qs trade above all three EMAs
on the five-minute chart. The next upside pivot then becomes Friday’s high of
70.625.

Glancing at the screen at
7:30 a.m., I now see that the NDX futures are trading down 28 points to 2768. In
addition to the Qs, I also check the pivot points of the NDX futures which I get
from our site. I see the Support Level 1 is 2733 and Support Level 2 is 2669.
Now I am thinking of possible Gap Down Openings and Trap Doors. Then the S1 and
S2 become pivot points to the upside.

I don’t know which way it
plays out over the day, but I am ready to react to what I see against my morning
framework. You would do the same exercise with the SPYs and the S&P futures.

face=”arial, helvetica”>(December Futures)
Fair Value	size=2>Buy	size=2>Sell
5.70	6.90	4.50

Pattern
Setups

It’s now 8 a.m., and the NDX futures
have fallen to 2748, down 54 points, while the S&Ps are off 6 points. If you
want to stay out of the fast lane today, just focus on the Qs, the SPYs, the
DIAs and the SMHs as you will find them easier to focus on and get better liquidity.

Have a great trading day. Keep
your helmets on and we will get a good contra opportunity day in the NDX.

Do you have a follow-up question about something in this column or other questions about trading stocks, futures, options or funds? Let our expert contributors provide answers in the TradingMarkets Question & Answer section! E-mail your question to questions@tradingmarkets.com.
For the latest answers to subscriber questions, check out the Q&A section, linked at the bottom-right section of the TradingMarkets.com home page.

NDX Contra Play

BUY THE FEAR, SELL THE GREED

Quick Links

Company Info

Contact

Company Resources