Trap Doors/Volatility Bands

September 6, 2001
Kevin Haggerty

It is
evident that everyone came out to play yesterday, as
the early morning death march headed for the 1369 NDX 100
(
NDX |
Quote |
Chart |
News |
PowerRating) low and the
1081
(
SPX |
Quote |
Chart |
News |
PowerRating) low. The NDX stopped short at 1371.30 on the 1:20 p.m. bar as if
it were divine intervention. Pre-planned, I imagine. The reflex rally took the
NDX to a 1437.49 intraday high on the 2:50 p.m. bar as shorts scrambled. The
index closed at 1415.30, off just 0.6%, which certainly doesn’t tell the true
story for the day.Â

It was the same for the
SPX, which hit an intraday low 1114.86 on the same 1:20 bar, then rallied to an
1135.52 intraday high before closing almost unchanged at 1131.74, right on that
.618 retracement number that has come into play so often.

There was a significant
pickup in volume yesterday, as the NYSE traded 1.4 billion shares, which is over
20% more than its average volume and had a volume ratio of just 30, which does
tell the true story of the day. The Nasdaq traded 1.9 billion, which is about
10% above its average, at a volume ratio of 32. Breadth, of course, was negative
at -990, while the NYSE breadth was negative at -623. The Dow closed up 0.4% on
the day, trading more than 30% above it average volume and a surprising volume
ratio of 68 as the Generals rotate more into companies with balance sheets that
have more staying power.Â

With Panic City turned on
yesterday, it’s no surprise that drugs and healthcare stocks were positive. The
(
SOX |
Quote |
Chart |
News |
PowerRating) closed down at -1.7%, but it is significant that the
(
SMH |
Quote |
Chart |
News |
PowerRating)s traded
4.3 million shares yesterday, as they hit an intraday low of 40.20 vs. the 39.11
.786 retracement level. Anything above four million shares has proven to be a
significant volume level for the SMHs, with the last being the 50.90 top on Aug.
2 which saw 4.1 million shares trade on Aug. 1 and 4.5 million shares trade on
Aug. 2. After that, it was all downhill until yesterday’s 40.20 low. Any washout
today on volume will probably provide a good reflex rally in the SMHs.

Programs will accelerate
any institutional activity both ways in this fragile market, so it is a
daytrader’s delight. Trap Doors both ways have been nothing less than
outstanding, and sequence trading prevails on an intraday basis. I will cover
this at the Vegas Seminar. How many easy trend-following days do you think you
have on an intraday basis where you can just do the obvious and buy pullbacks
and/or take the continuation entries “trend is your friend” type
stuff? Hardly any. That’s what you would like to do, but the intraday market
action and programs makes it a rare occurrence these days. The market makers and
specialists continue to be extremely profitable fading your emotion both ways.
Their profitability only drops off because of the decrease in volume, but that
has nothing to do with their percentage profitability on overall trades.Â

(September
Futures)

Fair Value

Buy

Sell

1.30

2.30

.30

Stocks
Today

Have a good trading day,
and don’t be afraid to pull the trigger on the long side when they crack them
down early.

Five-minute chart of
Wednesday’s SPX with 8-, 20-,
60- and 260-period
EMAs

Five-minute chart of
Wednesday’s NYSE TICKS

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Trap Doors/Volatility Bands

BUY THE FEAR, SELL THE GREED

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