Tread Lightly Early

November 16, 2000
Kevin Haggerty

Do you really think the
major funds and money managers came running in to sell stocks in panic, based on
what Greenspan said? Stocks long before this have told us “slow” is
upon us, i.e., papers, chemicals, aluminums down and utilities up. The Fed says
“slow” for the first time to us, but still worries about inflation. So
what’s new?Â

The timing was excellent
for a slam-dunk play by the program traders. The futures had rallied from 1385
to 1404, which is right at a cluster of resistance — the Federal Reserve comes
out and because of their gray dialogue, the time was right to attack. The
futures were sold down to a new intraday low of 1381.50 which, as the premium
collapsed, meant other sell programs were automatically triggered. Daytraders
still long futures or stocks were blown out on stops and any institutional or
retail sell orders that had been scaling up in the rally then got accelerated to
the downside. So by legging the futures on the sell side at a key inflection
point and being able to buy stocks much lower, they made a very profitable play.
This all happened in ten bars, but most of it on the first two wide-range bars
down.

So what happened next? Did
these same institutions come running back in and buy stocks to take the S&Ps
back up to 1399, just 5 points shy of the rally high? Not a chance. Suffice to
say program acceleration of the market works for us and against us. The problem
with yesterday’s knife down is that it comes at a tender time, as the market is
attempting to get some legs and get past the hacks in Florida.Â

The initial rally after the
pullback from the prior day’s gain started with an RST buy pattern in the
S&P futures, with the 5 swingpoint being the 10:00 a.m. bar and the 1
swingpoint was the 8:25 a.m. bar. You couldn’t have picked that up unless you
were using a vendor like AT Financial that gives you early prices. There was
also a very positive RSI divergence, using a five-period RSI with an
eight-period moving average of it.Â

For those who are
unfamiliar with RSTs, you got a 1-2-3 entry just 2 points above at 1390. Entry
on the S&P 500 cash was on a Trap Door pattern above the high at the 10:00
a.m. bar which was 1379.32 and again on the first breakout to new intraday highs
at about 1385. The S&P 500 cash traded to an intraday high of 1396.

The semis came out early
yesterday, remained green to finish +3.9% for the third up day in a row, so look
for pullback entries as the odds are much better than continuation entry on the
fourth day. The biotech index, the BTK, was down -2.6% early, but by 10:15 a.m.
was green by +2%. It held the gains, ending the day +5.1% which is quite
impressive in view of last week’s Barron’s article.

Fifteen of the 25 chosen
ones I follow were green at the close. The banks were red wire-to-wire, while
the brokers stuck their heads up. Papers and chemicals finished green.

face=”arial, helvetica”>(December Futures)
Fair Value	size=2>Buy	size=2>Sell
7.55	8.80	6.05

Pattern
Setups

Regarding the semis, the
(
SOX |
Quote |
Chart |
News |
PowerRating) is up 14% in three days, so stay involved but be careful if you take
any continuation entry. I prefer pullbacks.

I will not respond to any emails
regarding the program trading — I probably said enough in the text.Â

Have a good trading day.

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Tread Lightly Early

BUY THE FEAR, SELL THE GREED

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