TraderTalk Workshop: Unlocking Profits By Using TradersWire Interactive, Part I

On Wednesday Feb.
26, co-creators of TradersWire Interactive Kevin Haggerty and Larry Connors conducted
a live TraderTalk workshop for TradingMarkets members with Duke Heberlein,
editor of TradersWire. Here is Part 1 of a transcription of their candid discussion of the
best approaches to TWI and how traders can use the alerts on the Java Applet and
other features of TWI to continually identify trading opportunities in a focused
and methodical fashion.

Larry Connors: OK
folks we’re live… with me are Kevin
Haggerty and Duke Heberlein. For those of you who don’t know who Kevin
Haggerty is, he is my co-founder at TradingMarkets and he also was the head of
trading at Fidelity Capital Markets for seven years. Welcome, Kevin.

Kevin Haggerty:
I’m happy to be here. I’ve got
to tell everybody — I’ve spoken to some of you — I’ve been really excited
about this since Larry called me because I guess you like to talk to other smart
people — and I learn every day from all of you and I hope that some
of my experience puts it way out to you guys.

Larry Connors:
Also with us is Duke Heberlein. Duke is
the editor of our TradersWire
and he also oversees all the alerts
and insights that you see every day. Welcome, Duke.

Duke Heberlein:
Good afternoon, everybody. Thanks.

Larry Connors:
The three of us are going to discuss and
teach you how to profit from our TradersWire. In my opinion, when it’s properly
used, it gives you the biggest edge vs. anything else we have on the site. We’re
going to go about 45 minutes today and then we’re also going to try to get in
some of your questions. If you have any questions, send them to Tradertalk@tradingmarkets.com.

We expect to have many questions and
what I’m going to try to do is bunch the most common questions together into
one, but what we’ll also attempt to do is to send you back responses to your
questions over the next couple of days via e-mail. So again, if you hear a
variation of your question it means that other people asked it and we just ended
up bunching this all together. Also, just to let everyone know, this
presentation is going to be archived and we’re also going to include charts with
the archive, and that should be up in about a week.

Why don’t we dive right into this?
Probably, the one piece of the
TradersWire that I think is the most significant piece is what we call our Java
Applet. It’s the guts of the market. It’s the alerts that you see at the bottom
of the screen every day. Kevin and
I created that together and essentially we selected these alerts because they
are the key price points and levels. It helps you identify what the Institutions
are doing intraday, or as Kevin calls them, the Generals.

So essentially, what we’re trying to
do is use certain key points to identify what the Institutions are buying, what
they may be buying, certain levels that prices are going to be bounced off…
and what I want to do right now with Kevin is
quickly go through what these alerts are. We’ll talk about these for a couple of
seconds and then we are going to talk about how you put some of these alerts
together on a given day to help you make money. Kevin,
the first thing we do is — we have new 60-day highs, new 60-day lows, new
52-week highs, new 52-week lows. Let’s
talk about that for a second. Obviously things making new highs — especially
60-day highs — help you identify where the money is going into.

Kevin Haggerty: Exactly.
I love these indicators because I use them a few different ways. Before you look
at all these alerts, one thing I do constantly is I go to the Stock
Scanner and I want to know a list of stocks that are above the line — above
the 20-, 50- and 200 MAs and that are also above the 50- and the 200-MAs — and
also where the +DMI is above the -DMI. So I start with a master list that I have
on my desk and then I do the same thing for the stocks that are the opposite of
that — you know less than, less than, etc.

Once I know that universe, above
the line and below the line, now I get to the Applet and I see the info coming
on new 60-day highs, 60-day lows, 52-week highs/lows, etc. As soon as I see that
name, I know it’s an above-the-line stock or a below-the-line stock. So for
example, a new 60-day high, now certainly we all like to get two-month tight
bases — a two-month flat base, there’s nothing better than it — at or above
the 200. I call that the base of the Trading Tree — the higher up you go, the
more the tree wobbles. So if I can catch a new 60-day high coming at or just
above the 200, I’m very excited, especially if the stock has made a good move
prior to that and is consolidating before it breaks higher.

When I see that alert and I check my
master list, I’m right on it. I also look at the 60-day highs where I say,
“OK, it’s a new 60-day high and it might be a Roofer.” My definition
of a Roofer is some kind of consolidation or basing pattern below three- and
five-year highs, so if I get a new 60-day high and I am aware prior of various
stocks that are within their three- or five-year highs, institutions love to
make those goes.

They love them, they’re right, the
story is good and they are going to take these babies and they are going to run
them, all things being equal, with new monies coming in. And FYI, the end of the
month is a very good time and also investment of new monies in the first two or
three days of the next month is also a good time, so that they can get these
stocks moving. I mean basically, they are able to make their own price — to a
great extent.

Seeing 60-day highs and lows gets me
right on that. It also might be a case of where you get many failed breakouts —
and we’ve seen that, Larry — in these markets where you might get a new 60-day
high and then everybody jumps all over it because a lot of us are looking, you
know. We all like to see that top-of-the-range close right there and ideally you
can get it before it comes out but when it does come out and everybody sells out
their profits and takes fast profits it will come back into the range.

So if I get a new 60-day high, and
again using Mark Boucher’s 52-week highs and lows, and using it with
relative strength and earnings per share, right away I’m looking for a
possible reversal of those highs to maybe sell, and the lows to maybe buy — you
know, for a quick snap back trade. I know Larry’s written a bit on those things
— the 20-day and things like that, but you might get a “two-fer” —
in other words, get a chance to take the sell side but if you see the breakout
of something like that, either the 52-week or 60 just to use the examples, you
know, obviously you want to see thrust and you want to see volume. If you don’t
get that, you’ll make a decision on what to do. But what I’m also looking for is
RSTs. If I get a 60-day breakout, a 52-week high or low, I’m looking for RST
setups, especially on the 52-week highs and 52-week lows.

Larry Connors: What
is an RST?

Kevin Haggerty: It’s
something I teach at the seminar and I think most everybody is familiar with the
name, not with how to do it. I know some of you asked if we are going to cover
that. No, this is not the venue for that. They can learn those at the seminar.
An RST basically, is higher highs and lower lows. There are some filters to use.
There has to be some symmetry to the pattern but this is how I use these highs
and lows also.

Larry Connors: Going
back to the first one that you mentioned, you’re looking at the 60-day highs to
occur and trying to coincide it with something approaching the three, four, or
five-year high because the institutions are going to come in and run the stock
from there?

Kevin Haggerty: Yeah,
it’s stronger — obviously if the stock‘s
up by the highs, you know, the three- to five-year highs, I call them Roofers
and the institutions will (if they can, all things being equal) they’re going to
make these things good, they are going to run them. And that’s with new money.
You see, when you get new money — they get money in every month. So therefore,
where do you put it? You put it in futures and you park it until you get the
prices you want on your stocks — they don’t have to rush in and buy it when
they get new money. They can go into the futures and then, when the stocks get
to the levels they want, they can sell the futures and buy the stocks. What they
will do is… you know, their cost on these things is down so much lower that
when they get new money, they just keep throwing it at a lot of these stocks.

Two recent examples are Nvidia
(NVDA)
and Genesis Microchip, (GNSS)
that the biggest hedge fund and the biggest mutual had a battle on — they both
marked it up at the end of the year and the breakout point on GNSS was 37. Well
before that, I just said, “You watch it when they both get to the exit at
the same time.” And they did.

Larry Connors: Yeah.
Let’s talk about another way to use the 60-day new highs and this occurred
yesterday. You and I talked about it last night. Yesterday (2/25/02) the market
opened up fairly strong and certainly there couldn’t be a lot of conviction as
to what was going into the market but if you took a look at the Applet and
if you took a look at the search feature…

What I like to do is to look at the
search feature about 30 minutes into the market, where you do a search for new
highs. And you saw the names that they were buying yesterday in the first 30
minutes that were breaking out — and this all showed up on the Applet: General
Motors (GM)
made a new 60-day high, Philip Morris (MO)
made a new 60-day high, Textron (TXT),
Maytag (MYG),
Eaton (ETN),
etc…. these are all big, heavy, consumer cyclical blue-chip names. That’s not
retail buying. That’s big institutions buying…

Kevin Haggerty: You’re
absolutely right. Smoke-stacks and heavy-machinery stocks. When you see that,
you know obviously it’s not fool-around time. It’s real cash buying those
stocks.

Larry Connors:
Basically, you’re saying this is where the Generals are. You kind of had
conviction that the rally was going to continue yesterday because these are the
type of stocks that were leading the way. These were the stocks that were
breaking out the first 30 minutes.

Kevin Haggerty:
Right. Exactly. Until the end of the day
when you review the volume — price and volume — then you go through those
things and you see rising prices, declining volume, then right away you get a
little hesitant and type of thing. But that’s the process that you go through.
You identify sectors, groups… And I’m a top-down guy anyway: market, sector,
group. And this is why I like the Applet so much.

As you say, Larry, I can get to see
right off the get-go which sectors… Is it all the basics? Is it just the
papers? Is it the conglomerates? Is it the GEs, etc., you know, the chemicals…
Or is it everything combined? And obviously, all of a sudden if it’s not
just one and you see it combined as you just mentioned, it reinforces any market
decision you have to maybe just get long the index proxies. Or, if you see
something like that, my first thought is to go to the Basic Industry SPDRs
(XLB)s.
Being a coward, thinking of the downside, you might just see those kinds of
stocks and rather than an individual stock, you go the other way and buy
the XLBs.

Larry Connors: Right,
right. Let’s move on to the next indicators that we show here and again we’re
going to talk about lumping these all together, but where you have things
touching, 50-day and 200-day moving averages… I know it’s kind of become
more in vogue since we’ve put it up there, but talk about the significance of
that, Kevin. I guess you can talk about first-hand experience at Fidelity
because the managers there were looking at these levels before they would enter
stocks.

Kevin Haggerty: OK,
yeah I mean what I’ll have to do is qualify that and say
“Institutions,” you know, but the answer is “yes.” For
whatever the reasons, I know a lot of institutions have a lot of internal
technical analysis, etc. Many institutions are a lot more technical than
you think. I mean obviously the fundamentals — they take care of those and
that’s first — but they’re very, very technical on entries and exits and how to
manage a stock. They manage stocks just like you and I do in a portfolio —
obviously with different zeros in a different way — but for some reason, I
don’t know why, the 50- and the 200-day moving averages, and the 10-week and the
30-week moving averages — I guess they’ve just been around since time
— and also the 12-month moving average (and it doesn’t matter, simple or EMA,
it really doesn’t) and those are all tested by Colby and Myers.

For whatever reason they’ve stuck, you
have to put something on a sheet of paper and the institutions will most
often put the 50- and the 200-day moving averages on there — and the 10-week,
the 30-week and the 12-month. So psychologically, as Larry said, they are front
and center, and I certainly know retail, retail and I don’t mean that in a
kind of demeaning way — I’m retail, all of us are retail in the sense that we
are out there — you have to have them on your chart. What
I do is, I take it a step further. I believe we use the 50-day simple, Larry,
right?

Larry Connors: Simple,
yes.

Kevin Haggerty: Simple
moving average. I will often have a daily chart with both the SMA and the EMA,
so I’ll have two 50-day MAs, a simple and an exponential and also the 200. Then,
in addition to that, against these alerts
that I get on the 50 and 200, I’ll have a daily Fib chart on the side that
I can just bring up off my toolbar that has all the Fibonacci moving
averages, i.e., the 55, you know, the 89, the 144 and the 233.

I find that stocks go in cycles vs.
various moving averages and so do the indices. I would have to say it really
doesn’t make a difference if it’s simple or EMA, you know, you are going to get
the same amount of trades whatever you use. But I think it’s better as
we’re doing here at TradingMarkets using the simple, because the majority
of people use the simple, I believe Larry. I know most of the
institutions use simple and a lot of them use 12 and 26. But that’s not going to
make or break you as a trader — it’s just a starting point.

Larry Connors: But
now with you… you would like to see with the Applet coming up, with the
information coming up, you would like to see a bunch of stocks at the same time
successfully bouncing off their 50- or 200-moving average. It would kind of give
you conviction first that these stocks may be bouncing…

Kevin Haggerty: Absolutely.
When you get symmetry in a group or symmetry in a sector, or all the indices are
bumping around their 50- or 200-day, I don’t care which way it does whether it’s
retesting it if you’re looking for shorts, or if it’s pulling back and you are
looking for longs. I just think that if you’re a position trader, the Trading
Tree starts there at the 50 and 200, depending on what stage the stock’s in.

If it’s more advanced, hopefully
you’re bouncing off the 50 — where the 50 is greater than the 200, but that’s
where you’re looking for position stocks, I mean especially in this choppy
market, breakouts are very, very difficult. It doesn’t mean you don’t take them
if they’re right, out of a good base, but you really want to have a mix and I
just find that the pullbacks and the retouches that I see on the Applet, right
away, it makes me focus especially as Larry said, if they’re all in a similar
group or sector.

Larry Connors: Let’s
talk about what you just mentioned — we’ve got pullbacks off the highs of 10%
and 20%. Same thing off the lows — they pull up 10% or 20%. But for the
momentum traders, the people who want to be long the strongest stocks, there are
two ways to play it. One is to play with the breakouts and the second way to
play is off the pullbacks.

Kevin Haggerty: Right.

Larry Connors: Why
is 10% or 20% so significant?

Kevin Haggerty:
Well, first of all, the stocks that are making new 52-week highs and I use Mark
Boucher’s screens all the time — ER
and RS — those stocks have had great thrust usually and they’ve had
big moves. They might be up 50%, 60% without anything more than a couple of
bars or three bars. So you finally get to reach the 10% bar which is not
much, that’s not really a big pullback for a top momentum stock. That’s your
opportunity.

Most often, as a lot of you know or should know, consolidation follows
thrust. We get a couple of wide-range bars of thrust or something breaks
out to a new level on the upside and then what usually happens, the third
bar — if you do get a third bar — it might be a small bar, narrowing of
range, too much, too fast. Then you’ll get some sideways action and
again it might be a 10% pullback of some sort or it might be a Dynamite Triangle
or a triangle that goes sideways all within the framework of one of those big
thrust bars and volatility narrows and then you’re ready to go.

Ideally, what I like (and I certainly
know Larry does)… I love to see that sideways pattern when volatility gets
down and you get into that 6-day, 10-day volatility which I use
constantly. You get that with a 10% pullback, Larry, and you get it into like a
wedge coming down, or a triangle, I just love to play those on those pullbacks.
I look for those constantly.

Larry Connors: So
this is a stock that is pulling back off its highs by 10% at the same time the
volatility is drying up?

Kevin Haggerty: Hopefully
the volume is drying up — you know, you don’t want to see all this at the end
of the game. You like to see that pullback on less-than-normal volume and also I
like to see it get quiet. I like to see the bars get a little narrow. Taking a
rest, you know. All it does is build up some fuel for the next thrust.

Larry Connors:
OK, let’s talk about a couple of
things with volume. One of the things in the Applet which we seem to get a lot
of questions on is Triple 9s to buy and Triple 9s to sell. Some of that is
not significant — Triple 9s to buy really means it’s at least 999 to at
least 100,000 shares to buy or sell.

Kevin Haggerty: Minimum,
right.

Larry Connors:
One hundred thousand shares to buy in General Motors (GM)
means nothing — 100,000 to buy in a stock that trades 200,000 or 300,000 shares
a day means a lot. Is that correct?

Kevin Haggerty: That’s
correct. Recently, with the advent of ECNs and all the activity in the ECNs,
floor brokers are reluctant to put those bids on the books and a lot of times
they might be flashing bids or flashing offers whereas upstairs traders have
some access or program traders will try to influence a trade. But oftentimes,
the way it’s trading, you have to put something on the book to be protected.

If you’ve got size to buy and you’re
getting, you know, there are crosses going on around you, meaning you’re down
there to buy stock but everybody’s — the other institutions have
their brokers — crossing stock in front of you, behind you, and you’re not
getting your share of the volume, then you’ve got to protect yourself and
you start putting those bids. A lot of times, you’ll see it, as Larry mentioned,
you’ll see it across the board in, let’s say, the blue chips and it
might be a major program getting started. So I find them very, very useful especially when
identified with group or sector.

Larry Connors: And
especially at extremes, you’d like to see a market that might be down heavy
intraday where all of a sudden you start to see Triple 9s to buy in some of the
big names and you see it going through and going through, it kind of gives you
conviction that the bottom might be in, if the money is stepping in.

Kevin Haggerty: Absolutely. You
don’t place those kinds of bids or offers on the book until
you’ve thought the wire had come a little tight and you’re ready to reverse.

Larry Connors: So
Triple 9s to buy or Triple 9s to sell will work even better and should be
focused on even more after the markets have had pretty good moves to one extreme
or another.

Kevin Haggerty: I
agree with that.

Larry Connors:
OK. Next thing with the volume alerts and
then we can move on from there. We’ve got two different volume alerts. One is
that we identify when a stock has done its average daily volume before 1:00 p.m.
ET in a given day, so it’s basically done a full day’s worth of volume before 1
p.m. The second thing we show is when a stock has done double the average volume
— and we try to combine it with price movement. Talk
a little bit about the significance of price and volume combined.

Kevin Haggerty: I
think as most of you know from my boring
text, I’m a price-and-volume guy. Volume precedes price — and you can’t
hide. There are a lot of reasons and ways you can sell stock — you know,
to raise money, to buy a house, etc. But there is only one reason you
want to buy stock and you’ve got to pay money for it and that’s because you
think it’s going up. So when you see that volume there and you see price
increase and you see volume, you’re pulled to that. And also, if I see a volume
increase right away I’m referring to 60-day highs and lows and all
the rest of it that we have talked about, or something that’s recrossing the
50-day or the 200-day and I get a volume alert, it all ties in.

Just as if some of you look at those
screens (S&P
500 Index Screen,
Nasdaq
100 Index Screen, 3
Day wake up call, and Change
in Direction) in the morning
on my text, because that’s my Bible. You know, I get down there, I look at
the volume so going into that day, I see a stock with a top-of-the-range
close on increased volume, a widening of range over its 10-day normal range —
or it might be a narrowing of range and a big increase in volume which
usually portends a reversal. I’ve got that list of stocks that I make up
pre-opening, so coming into the day, when all of a sudden I get these volume
alerts, well I already know from the screen in the morning — I had a heads up
on those stocks — so when I start getting those volume alerts and
they’re coming at me before 1:00 p.m. (which is the one I really, really like
because it’s early) is that now I really know that there’s a follow-through (to
use a cliché)
in many that group or sector, Larry, so that’s very, very helpful.

Larry Connors: OK.
Stocks turning positive or negative for the first time of the day — we’re
looking at stocks that have traded negative for the first couple of hours for
the day and have then turned green. When you see a bunch of those bunched
together coming across the Applet, you kind of know that the market may be
turning. And what we’ve seen here is — again, this is the guts of the market —
these things are many times doing it many times before the averages begin
doing it — the money starts coming into some of the momentum stocks before it
really gets into the overall averages. So again, we’re looking for a bunch of
stocks to be clustered together to be turning positive for the first time
of the day, or on the downside, to be turning negative for the first time of the
day, telling you that…

Kevin Haggerty: For
sure, and what I like to do is sell the proxies off of this. I find when I
start to see that real fast move — and you’ll see it come quickly — where
they’re reversing the previous close, OK, and they go negative on the day — or
vice versa, i.e., positive — I’m looking right away to get an early leg in to
either sell or buy the index proxies as opposed to the individual stocks.