Tech Futures Bomb, Then Expode

August 3, 2000
Marc Dupee

Nasdaq 100 futures
(
NDU0 |
Quote |
Chart |
News |
PowerRating) opened limit down on
corporate performance concerns from major tech firms, but rebounded from a
132-point deficit to land firmly in positive territory. The recovery was
impressive with the September contract zooming over a 295-point range before
closing 156 higher at 3663.00.

After steep declines, I look for a “V” bottom formation for a rebound
from the “unsustainable” down momentum witnessed on the open.
Unsustainable downward momentum I define as a decline so swift that, if it were
to continue, it would wipe out the entire value of a particular instrument within
a matter of hours. This morning the Nasdaq 100 futures
(
NDU0 |
Quote |
Chart |
News |
PowerRating) dropped 132
points in the first 11 minutes. At this pace, 12 points a minute, the entire
value of the NDU0 from 3380 would have been wiped out in 281 minutes, or in just
under five hours. This is unsustainable and I look for a “V” signal
to enter. As the chart shows, there were two possible entry points to enter on,
as well as a pullback from an intraday swing high.

The decision by the European Central Bank (ECB) to leave interest rates
unchanged rippled through financial markets, effecting currencies, bonds,
and metals.Â

Going the other way and from the Momentum-5
List, September dollar index futures
(
DXU0 |
Quote |
Chart |
News |
PowerRating) rallied, closing .32 higher
at 110.80.

Relatively higher US rates versus European rates boosted T-bond futures.
Bond analyst Tony Crescenzi
submitted to the TradersWire that “there is talk in the bond market of
expected disappointment in Cisco’s numbers and this is hurting the Nasdaq and
helping the bond market.” September T-bond futures
(
USU0 |
Quote |
Chart |
News |
PowerRating) closed 11/32
higher at 99 12/32.Â T-bonds also benefitted from a flight-to-safety and early from tech into bonds.

December gold
(
GCZ0 |
Quote |
Chart |
News |
PowerRating) hit new contract lows, falling
in part due to a stronger dollar. Gold is denominated in dollars and a stronger dollar
makes gold relatively
less attractive. Also, the Indian rupee hit an all-time low against the dollar.
India is the world’s largest consumer of gold. Gold sent unusually clear signals
that it could make a larger-than-normal move lower by registering on the Implosion-5
and 6/100 Low Volatility
lists. Gold fell as much as $4.5 an ounce before rebounding to a close 3.1 lower
at 273.4 and registered a potential reversal buy setup on the weekly
chart.Â

In softs, traders ditched speculative longs, leaving
cocoa to tumble to contract lows. World cocoa supplies are sufficient for the
current year and this year’s (African) crop is know to be large. Cocoa was another
contract that signaled it could make a larger-than-normal move after registering
on the 6/100 Low Volatility
List. The September contract
(
CCU0 |
Quote |
Chart |
News |
PowerRating) also broke the neckline of a
head and shoulders swing-top. Although cocoa could rebound from contract lows, the chart pattern suggests further downside after a reaction. To
estimate how low this contract could go, see my article on Defining
Reward/Risk Rations in the Futures Markets.

Tech Futures Bomb, Then Expode

BUY THE FEAR, SELL THE GREED

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