Reflex

March 13, 2001
Kevin Haggerty

There were certainly
others, but those were my focus — as you read in the text. The best contra
rally came on a 1,2,3 higher-bottom entry on the 12:25 p.m. bar above 1705 for
the NDX, which took the index up to 1757 which was a +1 3/8 point move on the
QQQs but much larger, of course, on individual stocks. There
were good contra moves also in
(
JNPR |
Quote |
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PowerRating) and
(
CIEN |
Quote |
Chart |
News |
PowerRating).

While Rome burned, the
daytrader was loving it. Market makers and specialists make big money on
emotions and you must be alert for the contra moves back as they work off their
inventory. The S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating), after its gap down, and then trading down
to its 2.0 volatility band which was 1203, could only manage a contra rally from
a low of 1198 to 1208. There was a 1,2,3 entry above 1204 which was stopped out,
and then a second long entry on an RST pattern above 1197 which also got stopped
out.Â

The avalanche started at
2:30 p.m. as large programs struck again at the same time as Friday’s attack.
The NDX had only rallied back to the open, and the SPX didn’t even make it to
the .38 intraday retracement level, because the Energies, Basics and Financials
all joined the downside with the Techs. The SPX closed at 1180 vs. the 1.618
extension level of 1174 from the last up leg of 1254-1383. The .618 retracement
level from the October 1998 923 low was 1164. Yesterday’s low was 1176.78, so we
are now on a heads up for a reflex rally which could give us some continuation
intraday trades.

Those of you who have been
with me since the inception of this commentary, know some of my cardinal rules,
such as “No overnights unless you have an options strategy,” and
“Don’t buy tech stocks without puts or a defined risk such as buying a call
or doing a spread.” I like
stocks with puts because it’s easier to trade around the position during the
day.

When the SPX was at 1450
and rising, and the NDX was running between +40%-50% above its 200-day EMA, with
major negative RSI divergences, I said to hedge a minimum of 50% of your
long-term positions and scale the hedge up. From your emails, I see that some of
you did that but in different ways. Both absolute tops were RST sell patterns.

I have started a program to
hedge a percentage of long-term money into the
(
QQQ |
Quote |
Chart |
News |
PowerRating)s with the net effect of
buying the NDX at a discount, and will make money if the NDX does nothing or
advances. More about that tomorrow.

After a 1.2 billion down
volume day vs. 104 million up, and -1727 decliners over advancers, we will get
more reflex to the upside and chances to lay some out on retracements. Keep in
mind the large programs that hit at the same times on Friday and Monday are not
finished, and it would be an understatement to say that they accelerate the
market in the direction it is going.

(June
Futures)

Fair Value

Buy

Sell

13.55

.14.85Â

Â 12.35Â

Pattern
Setups

Have a good trading
day and remember, emotions bring opportunity.

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Reflex

BUY THE FEAR, SELL THE GREED

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