Volatility And Travel Range

September 12, 2000
Kevin Haggerty

Last
week, the Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) gave us a 3.3%
reflex rally off the .38 RT level of 3841, which provided multipoint
opportunities for daytraders. Yesterday morning, the NDX knifed right to the .50
RT level of 3750, hitting 3734 on the 10:00 a.m. bar and then reversed, giving
you a rally of 3.4% up to an intraday high of 3852.45 by the 11:00 a.m. bar. The
50-day EMA was a pivot, especially for the trip down from 3852. The NDX trended
down all afternoon, hitting an intraday low of 3690.47 before closing at 3707,
-2.8% on the day but -4.2% from the intraday high of 3852.45. Travel range for
the day was over 8%.

The pattern for the entry
on the reflex rally from the .50 RT level was a three-bar pattern where the
10:05 a.m. bar opened above the previous close, closed in the top of its range,
and closed above the previous two highs on a wide-range bar with increased
volume. That set up entry for above the wide-range bar. If you played the Qs
(
QQQ |
Quote |
Chart |
News |
PowerRating),
it would have given you entry above the 93 5/8 high 10:05 bar. The Qs ran to 96
1/8. The reflex rally ran out of steam after a narrow-range reversal bar at
11:05 a.m. and a short entry or exit if you were long, below 95 3/4 which was a
three-bar reversal pattern. There were many corresponding long and short
patterns in related OTC momentum stocks.
(
CIEN |
Quote |
Chart |
News |
PowerRating) and
(
MERQ |
Quote |
Chart |
News |
PowerRating) were
especially nice to us on the short side.Â

The S&P 500 traded down
to and held its .38 RT level of 1486, with an intraday low of 1483 which is its
50-day EMA. The index closed at 1487.84. The S&P 500 has acted much better
than the NDX, and has been bolstered mostly by the banks, brokers, retails and
energies. Utilities continue to
trade as if interest rates are going to zero, or else the Generals are rolling
much of their tech money to the defensive utilities. When the Generals smell
recession, they will overweight to utilities, consumer staples, quality,
high-dividend yield (and there’s not much of that around), and also gold and
energy as contrary plays.

Some of the profits in the
semis have certainly gone to defensive sectors. The major semis are down 40%-60%
from the highs. I would expect the
Generals to attempt another run up in this group under the seasonal hype. What
next? Well, the .618 RT level for the NDX is 3650 and its 200-day EMA is now
3603. This zone would be an excellent launch for a major year-end rally
especially in the techs. This zone right at the 200-day EMA is obvious, and the
market doesn’t like to give us easy entry.

If we get a flash meltdown
below the 200-day EMA, then a recross above the 200 to the upside would be a
good opportunity to be in the NDX 100, S&P 500, or both, through year-end.
We have yet to even trade above the high of the low day since the NDX hit 4147,
six trading days ago. There will probably be some retracement back to the 4147
high. The best we’ve had is the inside day last week, which was the reflex rally
off the .38 RT level.Â

I would key on the
3740-3745 level on the NDX for long trading entry in the QQQs or related stocks,
and then again if we get a change in direction above yesterday’s high of 3852.
For the S&P 500, I would look to use the 50-day EMA as a pivot point and
look for entries above 1490, as that is the #2 point in a closing range 1-2-3
pattern from yesterday’s action. If the dynamics still look good, you can get
more aggressive above yesterday’s high of 1506.75.Â

The Net, Net on the market
dynamics yesterday was positive as to the volume ratio and breadth. The averages
were hit by some of the big-cap stocks as the Generals moved money around. It’s
a strong bet that the Democrats will make sure Greenspan calls out the brokerage
giants to support the S&P futures in case of any meltdown, so as not to blow
up Al Gore.

face=”arial, helvetica”>(December Futures)
Fair Value	size=2>Buy	size=2>Sell
23.75	25.25	22.35

Pattern
Setups

Have a good trading day.

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Volatility And Travel Range

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