S&P 500 Convergence Zone

November 6, 2000
Kevin Haggerty

The
S&P 500 has rallied 9.7% from 1306 to 1433 in
12 days and has provided many trading opportunities. After a wide-range bar up
to the 200-day EMA which is now 1430, the index has traded sideways within the
range of that wide-range bar for the past three days. Thursday and Friday were
the narrowest-range bars of this rally.Â

As you now know,
contracting volatility patterns usually precede strong moves. There is strong
convergence at this level. You have the .50 RT level at 1418; the 50-day EMA of
1422; the 200-day EMA at 1430; and the .618 RT zone just above at 1444. That’s a
convergence of four key zones within 26 points or 1.8%. It will take some work
for the Generals to get it through 1444 and if they do, the .786 level at 1482
is a probable objective.

If the S&P 500 backs
off from this area to digest the gains, then 1350-1360 would be a good entry
level with a stop right below the last swingpoint low of 1338. This is an
exercise that you start the week with as you determine your trading plan and
decide whether it’s a good position entry zone or if you should stay within the
confines of a daytrade.Â

My opinion is daytrade
unless we blow through the .618 RT level of 1444 on good volume. We
have Cisco
(
CSCO |
Quote |
Chart |
News |
PowerRating) today and the media’s Presidential election, so why would
you get caught in a new position coming into that? For those that anticipated
and scaled into longer-term trades to play the seasonal, your positions are in
the money and you have your own specific stops, depending on your specific
trading style.

The Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating)
which closed at 3322, is looking at resistance/convergence up at the 50-day EMA
of 3433; the 200-day EMA at 3520; the .50 RT level of 3551; and the .618 zone at
3692. The first rally took the NDX
from 2982 to 3515, which was an 18% ride. It stopped right at the 50-day EMA
before a quick trip back down to a new marginal low of 2956, and then reversed
and closed above the prior 2982 low on the same day. From 2956, the NDX has
rallied 14% from the intraday high of 1360 on Friday. With all that volatility,
especially in the chosen ones and semis, there has been excellent opportunity
for daytraders.

The NDX gave us more of the
same on Friday as we once again had a chance to ride the contra rally with the
market makers and specialists. After trading down to the intraday low of 3275 on
the first six bars, the index traded up to the intraday high of 3360, which was
a Fibonacci extension move of the 56 points down on the first six bars. The NDX
declined to exactly the .618 retracement level of 3307 which was between 3275
and 3360, and then rallied quietly to 3343 before trading sideways into the
close.

The NDX left you with a
triangle pattern on the five-minute charts, which is your starting pivot point
for today for any daytrades.

face=”arial, helvetica”>(December Futures)
Fair Value	size=2>Buy	size=2>Sell
9.90	11.40	8.65

Pattern
Setups

Have a good trading day.

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S&P 500 Convergence Zone

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