Play The Overreaction

December 12, 2000
Kevin Haggerty

The
S&P 500, after a quick two bars down, gave
you an Opening Reversal and a 1-2-3 pattern entry at the lowest common
denominator above 1369.11, which was after a three-bar pullback. This entry was
above the 8-, 20-, 60- and 260-EMAs on your five-minute chart. The rally ran
right to the converging resistance zone which was the 1383 .618 RT level, the
50-day EMA of 1380.35 and the current down trendline which is about 1390.Â

The rally high was 1386.14
before it pulled back, but only to the intraday .38 RT level of 1376 to 1378,
and then gave you an afternoon uptrend that ran to 1389.05 for the intraday high
and right at the trendline. It recoiled immediately from that level to 1380.20
where it closed. The 50-day EMA pivot starting today is 1380.74 and the 200-day
EMA remains at 1414.

Total volume was 1.2
billion, the volume ratio positive at 65 with advancers over decliners by +491
and also institutional blocks still active at 25,652. The significant sector —
and it shouldn’t be a surprise — was the SOX which gained +7% to follow up its
Friday run of +12.1%. Low to high for the past eight days, the SOX is up 33%.
Volume preceded price on this move and if you entered on the breakout of the
Dynamite Triangle on 12/5, the index is up 21% from entry. The entry above 576
was the RST buy pattern.

The Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating)
advanced 2.7% yesterday, so it was clearly the semis doing their thing. The
index closed at 683 with the 50-day EMA at 701 and the 200-day EMA up at 856.
You would expect the semis to back off after this 33% run but there is plenty of
percentage room up to the 200-day EMA after the pullback.

Today you have those that
bet Bush because of the Supreme Court 5-4 stay, and of course the Gore side
(which includes almost 85% of all media) has the Supreme Court reversing that
stay. Good strategy for the daytrader today is to do nothing until after any
decision and then play the overreaction which will most certainly be overdone —
just like we have seen the last few days in stocks like
(
BAC |
Quote |
Chart |
News |
PowerRating) and
(
MOT |
Quote |
Chart |
News |
PowerRating).

A news blurb said BAC loan
quality was a problem. The stock trades down to 36 5/16 and they immediately hit
the S&P futures at the same time. The stock closes at 38 and in three days,
it closed at 43 7/16, +20% from the so-called problem. MOT did the same thing
after it reported the other day. The TV (and I won’t mention her name) was
chirping “Tech Crash” that morning due to MOT. Excuse me? MOT was
already down from 61.5 in March to 17.68. MOT opens that morning at 16 and then
rallies to close at 17.75. The techs also rallied and those traders fading the
early retail sellers that listen to that dribble every day made money.

MOT hit 22 yesterday, just
two days after the 16 open, which is a 37.5% gain low to high. So goes the game.

face=”arial, helvetica”>(March Futures)
Fair Value	size=2>Buy	size=2>Sell
22.00	Â 23.30Â	Â 20.65Â

Pattern
Setups

Stocks today: Stay all over
the semis in case of continuation above previous highs but second entry is
advised as they are extended. Better entry should come from pullbacks on both
the daily and intraday charts.

(
AMAT |
Quote |
Chart |
News |
PowerRating) was the
strongest move relative to volume yesterday as more than a few of the Generals
are competing for stock.

Have a good trading day.

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Play The Overreaction

BUY THE FEAR, SELL THE GREED

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