Pre-Greenspan Game

May 11, 2001
Kevin Haggerty

The
professionals once again — as always — were
able to capitalize on the opening hype and futures games. The Nasdaq 100
(
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gapped open just over 50 points (or 2.7%) at 1926, and that’s where the upside
ended. The index traded down for the entire session, closing at 1838 — which is
at the lower end of the overbought trading range between 1982 and 1743.45.

The 20-day EMA is 1834.81
while the 50-day EMA is 1744 and converges with the bottom of the range. Many of
the over-used and over-talked-about lagging indicators like MACD, etc., are
rolling over. The surprise would
be the the overbought condition is worked off sideways — rather than a
retracement of some degree to the 1348.52 April 4 low. As a daytrader, you could
care less, and as a position trader without unlimited funds, you should be
utilizing an options strategy to play in the game.

Many of the Travel Range
stocks gave back some gains yesterday — but why not? They are all up over 100%
or more during this rally as they defied the short recommendations all the way
up in addition to the wealth of negative fundamental information that the
Generals had started discount. The
markets are long gone by the time you read about good fundamentals in the
perfect environment.

The prevailing sentiment is
that there will be a sharp sell-off and then a resumption to the upside. The
world expects Greenspan to lower rates again and feel he is behind the game as
Fed funds must be lowered. Lowering rates isn’t enough by itself, it’s whether
or not he has the money-supply spigot on, and he does in a big way.

Over the past three months,
the money-supply growth hit record highs and the year over growth close to 14%.
It won’t continue to chase bonds or sit in low-yielding money markets for too
long. If the obvious plays out and we get a retracement correction, then you
will get another good long-term entry level.

Stocks
Today

(June
Futures)

Fair Value

Buy

Sell

3.60

4.90

2.30

The Travel Range stocks are
trading like beach balls and certainly favor the short side today as only one
stock in the NDX 100 closed in the top 25% of its range. The problem is you
probably won’t get trade-through entry because of the discounting by the market
makers of the early sellers.

Also the
(
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— with this volatility and so many different programs and different agendas,
the Qs have been offering some good opportunities and good travel range.

Have a good trading day.

Chart 1. Five-minute chart of
yesterday’s S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating) with 8-,
20-, 60-
and 260-period EMAs.

Chart 2. Five-minute
chart of yesterday’s New York Stock Exchange ticks.

Pre-Greenspan Game

BUY THE FEAR, SELL THE GREED

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