Same Strategy

  • October 4, 2000
  • Kevin Haggerty

The
Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) closed at 3353, -3.06%
on the day and down 30.4% from the 3/24 4816 high. It was another excellent day
on the short side, as the selloff continued for the third straight day in the
chosen ones. Some of them, like AMCC
(
AMCC |
Quote |
Chart |
News |
PowerRating), gave you two opportunities,
trading below the previous day’s low. 


That makes three
wide-range-bar down days in succession for most of the chosen stocks, so you
must certainly be ready to play them from the long side on any intraday-chart-pattern
setup. You might get a continuation short entry, then a reversal of yesterday’s
lows, which could be a good intraday pop. The NDX is back to the .618 RT zone,
based on framing from the 10/99 low, but we have been there before at 3342 on
8/3. The next alert level down is the 3150-3200 zone. See yesterday’s
commentary.


The cyclicals like Alcoa
(
AA |
Quote |
Chart |
News |
PowerRating),
DuPont
(
DD |
Quote |
Chart |
News |
PowerRating), International Paper
(
IP |
Quote |
Chart |
News |
PowerRating) and Georgia-Pacific
(
GP |
Quote |
Chart |
News |
PowerRating), got
wide-range-bar ups on decent volume yesterday. Hello, Generals! This was
preceded by RST buy setups three days before in all cases. When the cyclicals
start to go, the most tradable part of it is at the beginning. 


As I mentioned last week,
there were and are many options strategies that one can play from a position
standpoint. Most of those limited-risk / unlimited-reward strategies you read
about, like call ratio back spreads, are not available at decent spreads unless
you enter, say, an
(
IP |
Quote |
Chart |
News |
PowerRating) or
(
GP |
Quote |
Chart |
News |
PowerRating) when the call premiums are low, along with
the implied volatility. That’s usually when the stocks are obviously out of
favor.


It’s not unlike the dollar
averager that stops averaging at exactly the wrong time, which is in declines.
They seem to prefer averaging up, consequently keep raising their average price
so high that the inevitable fall is very costly. Right now, you should be
thinking about how you are going to add to long-term positions in the NDX 100-
or S&P 500-type funds or proxies. What is your strategy? Will you scale in,
starting in this .618 to .786 zone? Everyone has different resources and goals,
but if you are waiting for the same people who didn’t tell you to sell at 4816
to ring a bell to buy, then you are in the wrong business!














face=”arial, helvetica”>(December Futures)


Fair
Value

size=2>Buy

size=2>Sell


17.40


18.65

16.30


Pattern
Setups


There aren’t many setups from the
daily charts yesterday, as a result of the multiple wide-range-bar downs with
closings in the bottom of the range. The cyclicals, because of dollar price, are
better position trades, but they can be played either way if they come for them
in any significant way today. 


Also work the list of the chosen
stocks mentioned in the past three days for intraday setups. You certainly know
where yesterday’s lows are if the screens turn red in those stocks and you can
get continuation short entries. If we go green early, look for reversal of
yesterday’s lows and long intraday entry in
(
NTAP |
Quote |
Chart |
News |
PowerRating),
(
JNPR |
Quote |
Chart |
News |
PowerRating) and
(
BRCD |
Quote |
Chart |
News |
PowerRating). 


Also the
(
QQQ |
Quote |
Chart |
News |
PowerRating)s on an intraday
basis, look for a reversal of the 8/3 83.31 for longs if they come for them
today, and keep a tight stop just below. By
making a new minor low yesterday at 83.26, the QQQs are now setting up in an RST
buy pattern which, when it completes, will probably lead to a strong rally. I
will alert you when it does for those that want to take a long position.


Have a good trading day.


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