Top Of The Range Challenge

May 17, 2001
Kevin Haggerty

On
Monday we said Expiration
+ Greenspan = Volatility and the
Generals and program agendas have given us just that. Total volume jumped to 1.3
billion, a volume ratio of 86 with 1.2 billion up and just 193 million down.
Advancers led decliners by +1042. The Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) advanced + 5.7%,
led by the Semis and SOX + 6.5%. The
S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating) ran +2.9% and the Dow +3.2%, as it closed above its down
trendline from the 11,750 all-time high. It is just 4.7% from that high.

The first discounting in
new bull markets starts with Cyclicals and Value stocks. Defensive stocks hit
the wall and Growth stocks hit the skids and their bottoms. The Semis are
commodity stocks and they hit their bottoms in the fourth quarter of 2000.
During the first recovery stage, Value stocks, Cyclicals and sometimes Small
Caps become the new market leaders and can outperform Growth stocks for a
significant period of time, but the rising tide will lift all stocks. Interest
rates start to inch up but not enough to cut off the rallies in Housing and
Construction stocks which have rocketed, e.g.,
(
PHM |
Quote |
Chart |
News |
PowerRating) has run 220% and is still
above all of its EMAs.

The Generals have been
consistent with their sector rotation and business cycles. Yes, that is correct.
There still is a business cycle, New Era folks. I’ve only seen the sector
rotations in bull and bear markets since 1969/70 and they are very similar
except for minor subtleties. Markets discount future events and you can’t
participate unless you believe what you actually see, not what you read.

The S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating) also
closed just above its down trendline and is now challenging a 1305 200-day EMA
and 1306.50 retracement to the 1530 9/1 high. The 200-day SMA is up at 1338.
Yesterday, the Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) went from almost the bottom of its
trading range at 1769 to a 1904 high for a +7.7% low-to-high move. The top of
its range is 1982.

I have included the NDX and
SPX five-minute charts which show the simple clearly defined entry patterns. The
NDX came out of a simple 1,2,3 higher bottom pattern — which is the most common
— giving you entry at 1799 before running to a 1904 high. That was the trend
entry but there was a previous 1,2,3 Close entry above 1787 which gave you the
lowest-common-denominator entry pattern.

The rules for the 1,2,3
close are only taught at my seminar.

Chart 1. Five-minute chart of
yesterday’s NDX 100
(
NDX |
Quote |
Chart |
News |
PowerRating)

with 8-period (high and low) SMAs and 5-period
EMA.

The SPX gave you a 1,2,3
Close entry above 1245.25 and then the trend entry above 1247.95 which was the
First Consolidation Breakout to New Intraday Highs and also an Opening Reversal.
The only Grail I know is to keep it simple by identifying the buying and selling
pressure and then the Change in Direction or continuation entry from a clearly
defined pattern.

Chart
2. Five-minute chart of
yesterday’s S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating)

with 8-period (high and low) SMAs and 5-period
EMA.

Stocks
Today

(June
Futures)

Fair Value

Buy

Sell

3.10

4.40

1.80

Yesterday was big red down
early but we had done our daily chart homework from the SPX and NDX screens on
the site and put those potential longs on our Trading Plans. Suffice it to say they
were profitable, but more importantly, we were prepared and ready to act — not
just winging it. Many of these
stocks that came out of the top yesterday on wide-range bars will probably be
better intraday pullback trades or second entry longs above yesterday’s high,
but don’t jump in on the first few bars.

I didn’t mention the Travel
Range stocks but you have that list — it’s almost the same every day with a few
variations. Have a good trading
day and don’t get aggressive on your first entries at all. Obviously we moved
quite a bit yesterday and we are going to get some selling into this.

Chart 3. Five-minute chart of
yesterday’s S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating) with 8-,
20-, 60-
and 260-period EMAs.

Chart 4. Five-minute
chart of yesterday’s New York Stock Exchange ticks.

Gary
Kaltbaum on TradingMarketsWorld! Gary Kaltbaum will be appearing on the
Intermediate-Term Trading board tonight, Thursday, May 17, at 8:00 p.m. ET. Be sure to take
this opportunity to chat with and have your questions answered by a leading
intermediate-term trader. Click
here to take your trading to a new dimension.

Top Of The Range Challenge

BUY THE FEAR, SELL THE GREED

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