Short-term Converging Lows

August 30, 2000
Kevin Haggerty

Yesterday
they took the S&P 500 down about
9 points between 10:00 a.m. – 11:00 a.m., then rallied it 9 points by the 1:25
p.m. bar, before the index drifted down into the close. The major averages were
all flat to down, as were the market dynamics such as breadth and volume.Â

Looking at the dynamics on
the five-minute chart preparing for today’s trading plan, I see that the S&P
500 has traded down from a 1524 high on Monday, to yesterday’s 1505.50 intraday
low on the 10:55 a.m. bar. It rallied to the .50 retracement level at 1514.89,
then drifted to close at 1509.84.Â

Starting out today, I see
that on the five-minute charts the 20-period EMA is 1510.02, 60-EMA is 1510.79,
and the 260-EMA is 1511.58. This
means that before anything good can happen the S&P 500 must trade and stay
above the 260-EMA. When it does, you should be looking for intraday patterns on
the best-acting stocks.

Good things happen when the
20 is greater than the 60, and the 60 is greater than the 260, so for any
staying power, the S&P 500 must reverse its current status where the 20 is
less than the 60 and the 60 is less than the 260.Â

Looking at the daily chart,
I see that the low of the high day is 1506.44, so it will be negative trading
below that low. I also see that
the low on Friday was 1505.09, so if the index trades below that low it will
also be a three-bar reversal to the downside.

There is obviously a
convergence of key lows. Yesterday’s key low of 1505.50, 1506.44 (which is the
low of the high day) and 1505.09, below which is a three-bar downside reversal.
These observations should be incorporated
in today’s trading plan as you watch the developing market and stock
dynamics.Â

The high day on Tuesday was
the twenty-first day of the current rally which is, as you know, part of the familiar
Fibonacci sequence of three, five, eight, 13, 21, etc. Combine
this with the converging lows and it spells alert zone.

face=”arial, helvetica”>(September Futures)
Fair Value	size=2>Buy	size=2>Sell
4.60	5.75	3.40

Pattern
Setups

On the short side, work the intraday
charts for any momentum stocks that break their 260-EMAs to take advantage of
any air-pocket shorts. This
breaking of the 260 should coincide with the S&P 500 breaking the
convergence of those three lows discussed above.

Have a good trading day.

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Short-term Converging Lows

BUY THE FEAR, SELL THE GREED

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