Short Term Extended

October 23, 2000
Kevin Haggerty

Another
excellent day on Friday with trade-through entry in
most all of the chosen ones from Friday’s
commentary. While some debate whether it’s a bottom, others have capitalized
on an excellent trading opportunity that had high probability and only a short
distance to stops if wrong.

The initial decline in the
Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) from the 3/24 4816 top to the 5/24 2897 low was 40% and two
months in time. The .50 RT level framed from the 10/98 low is 2940. After
recrossing 2940, the NDX rallied 41% to 4089 on 7/17, a few days short of two
months. This 40% RT rally took the NDX to the .618 retracement level of
4084.Â

With all the chatter about
real or not real, the NDX 100 was moving with excellent geometric symmetry and
presenting trading opportunity at key alert zones. From 4089, the decline was
18.3% in three weeks to 3342 before rallying 24% to the .618 zone again, making
a marginal higher high of 4147.

There was a five swingpoint
RST buy pattern the day after the 3342 low. Once the index got back above 4089,
I said be ready to enter an RST six swingpoint sell pattern on the first close
below the low of the high day. That low was 4057 on the high day of 4147.
I said this was a high-probability trade
because we were coming into the very dangerous September through October period
which is the timeframe that reality of earnings takes place.Â

The high probability and
reason to take the trade or hedge your existing holdings was the significant
convergence at this level. There was a six point RST sell pattern right at the
.618 RT level and you were entering the dangerous September to October period.
The entry was below 4057 or on the 3988 close that same day.Â

Translated to the
(
QQQ |
Quote |
Chart |
News |
PowerRating)s, that meant trading below 101.18 or on the 99.5 close. The
NDX declined 28% from 4147 to 2982 and to the .50 RT level of 2940. You were
once again in the key alert zone, looking for convergence. For those of you that
hedged up at 4057, I said take 50% of your money off the table with a 9%-10%
profit and let the other 50% roll to catch any downdraft, which is exactly what
we got.Â

The Qs declined to 74.31
and gave a seven swingpoint RST confirmed buy entry on the day after, at 81.25.
Those of you that bought at the equivalent .50 RT NDX level of 2940 own the Qs
about 75 to 77, so from entry to exit on the second 50% your gain was around
18%.Â

This current RST buy
pattern was once again a high probability trade which had strong convergence,
but if you went through all the “what if’s,” “whether it’s a
bottom or not,” you once again lost good opportunity. The convergence is
that we are entering the strong historical season (October 26 through April),
you had a very strong seven swingpoint RST buy pattern coming in the .50 RT zone
of 2940 and a test of the previous 2897 low.Â

If we get the seasonal
rally, it could very well be a 30%-40% rally as it retraces some percentage back
up to the 120.5 QQQ high or 4816 on the NDX 100. If we don’t get the strong
rally, your stops are not far below your entry on the RST buy pattern. The
pattern started to set up below 83 3/8 and we got new lows with no entry until
the day after the 74.31 low.Â

The Qs have rallied 18.3%
from the 74.31 low. Those of you that took entry above that day’s high or close
have a cost between 79.75 to the 81.25 close. The Qs hit 87 7/8 on Friday before
closing at 86 3/8. The 50-day EMA is 88 and the 200-day EMA is 88.5 so from
there you should expect some retracement.Â

Net, Net, Net: If you took
the trade, you are in the money, and stops moved up to cost plus.

face=”arial, helvetica”>(December Futures)
Fair Value	size=2>Buy	size=2>Sell
12.20	13.60	11.00

Pattern
Setups

We’re very extended, so these chosen
ones could very well turn out to be shorts today on your intraday charts, but if
they come for them one more time, take a look at:Â

Have a good trading day.

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Short Term Extended

BUY THE FEAR, SELL THE GREED

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