Overreaction Day

March 19, 2002
Kevin Haggerty

The SPX, after the
opening gap up, traded to that 1174 resistance level, which is now a triple-top
magnet for the accelerators, whether it be the program gang, large hedge funds,
or some large money managers that essentially trade like hedge funds. You also
have the first quarter mark-up coming, and there will be one. The initial up
move was over on the 9:50 a.m. bar, and the SPX reversed down to an 1159
intraday low just before noon. As you can see, there was a test of the 1177
rally highs, which is the .38 retracement to the all-time 1553 high, and is also
the .618 retracement to the May 22 1316 high.

Relating it back to the
(
SPY |
Quote |
Chart |
News |
PowerRating)s, if the 118 triple top is taken out, which is the .618 retracement to
the May 131.70 high, then the SPYs could advance to the .707 level at 120.60 or
.786 level at 123.54. This resistance area is heavy, and that is why there has
been so much choppiness. As you look at your daily chart, you will see that the
head-and-shoulders breakdown of the SPX into the September lows, which was a
knife down after six weeks forming the pattern.

It looked as if yesterday
had a shot, but the early sell-off to 1159 and then a double bottom at 1160
preceding a 2:00 rally into the close at 1165.55 didn’t get it done. A lot of
noise, but the 1165.55 SPX close was virtually unchanged. Net net, the 1174
resistance was tested, as was the 1157 200-day EMA, and the SPX finished at an
equilibrium between the two.

Economic news is being
hyped as very bullish, investor bullish sentiment is very high at 58% using the
AAII numbers. The TV suits are now on the "Greenspan: Will he or won’t he
raise rates?" kick as they were all the way down. If they didn’t do this,
there would be a real void in their inane chatter every day. Fed funds say no
change today, but after that, they are going up and will probably double by
year-end. But that’s starting from less than 2.0%. Inflation is whatever the
government wants the numbers to read. If it doesn’t read right, they just change
the composition so it does. After all, their debt is based on it. Have you
checked your food increases over the past two years, and especially your health
care if you pay it yourself? Most of you are also being taxed higher than you
have ever been thanks to eight years of Billy Ball. And the beat goes on.

I see that futures are up
early as FOMC Day begins. Nothing is expected to change, but that won’t stop
them from trying to run the futures and maybe take out the 118 resistance on the
SPYs and the 1177 SPX high. Be ready to fade any overreaction by the futures on
a "no change in rates."

Stocks
Today

Have a good trading day.

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

Five-minute chart of
Monday’s NYSE TICKS

Additional
resources from Kevin Haggerty:

Click
here for a FREE 1-week trial to Kevin Haggerty’s Volatility Bands

To learn exactly how to trade like Kevin
Haggerty, click
here.

Below are the tools that Kevin uses on the TradingMarkets
Indicator page. To learn more about how to use them, click
here.

S&P
500 Index Screen

Nasdaq
100 Index Screen

3
Day wake up call

Change
in Direction

Overreaction Day

BUY THE FEAR, SELL THE GREED

Quick Links

Company Info

Contact

Company Resources