Sellers Continue In Charge

December 4, 2000
Kevin Haggerty

Nevertheless, last week’s
bottom line was ugly from a market standpoint. The intraday highs were put in by
11:00 a.m. on each of the last three days, then the selling took over on each of
those days until late-afternoon cosmetic buying into the close. Not good. On the
week, the final tally was negative because the S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating) closed in
the bottom 25% of its weekly range, while the NDX 100 closed in the bottom 30%
of its range. The sellers are in charge.

Friday is an example of the
early enthusiasm and lack of follow-through of closing strength. The volume
ratio was a positive 63. Advancers led decliners by +915, and yet the S&P
500 closed at 1315 in the bottom 30% of its range. That means the sellers got a
chance to scale up, selling into the early enthusiasm. But at the end of the
day, the sellers had more stock to sell than the buyers had to buy. Also,
because of how fragile the market is right now, the futures action totally
dominates the stocks.

So, we got a quick bounce
off a key alert zone, but at the end of the week neither the NDX nor the S&P
500 could even get above their 10-day moving averages. As you can see on your
daily charts, it is a perfect negative sequence for the EMAs, which has the
200-day EMA as the high EMA, then in descending order you have the 50-, 20- and
at the bottom is the 10. That is a sequence where significant bottoms are found
and currently the NDX 100 is 33% below its 200-day EMA, so a bear market rally
back to the declining 200-EMA is +33% and will be a +21% rally back to a
declining 50-day EMA of 3085.Â

Short-term traders must be
ready to play this if there is entry. The first pivot point would be above
Thursday’s high of 2573. You shouldn’t take the Qs home overnight unless there
is a close above that 2573 high. The potential move back to the 50- and 200- of
21% and 33% provide good risk-reward to placing your stops just below 2496 which
is -3%, or -5.7% if you use the 2426 recent low.

A more conservative way to
play it is with a bull spread in the QQQ calls. The risk-reward is 4-to-1 to the
50-day EMA and 10-to-1 to the 200-day EMA. The trade comes at a key retracement
level and a year-end or possibly a feel-good rally after the Florida decisions.
Different markets call for different tactics and this is a probe-and-attack kind
of market. Attack when unexpected and have a clear path of withdrawal.

There won’t be any obvious
textbook technical-analysis scenarios to observe for quite a while.

face=”arial, helvetica”>(December Futures)
Fair Value	size=2>Buy	size=2>Sell
3.30	4.50	1.80

Pattern
Setups

Have a good trading day.

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Sellers Continue In Charge

BUY THE FEAR, SELL THE GREED

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