Volatility Creates Opportunity
Today I would like to once again point out why strong institutional
stocks in the S&P 500 are excellent trading selections when they pattern up either from a
daily chart or five-minute intraday chart.
Intraday volatility caused by program trading often creates multiple trading opportunities
in the same stock. Yesterday was a prime example. The S&P futures were up strong pre-NYSE
opening, and of course, the market opened strong as well. The SPDRS [SPY>SPY] traded from a low
of 129.43 to 131.15 by 12:45 p.m. EST, a 1.3% move that was accompanied by institutional
and retail buying (in addition to buy programs along the way).
We started to retrace the strong early move, then sell programs hit and accelerated the market
down to a new intraday low of 128.875 (down 1.7%) by 2:45 p.m. Some of the strong
institutional names had retraced 50% or more of their early moves, and institutions came
back in to buy at prices that were probably lower than the VWAP (volume weighted average price)
for the day. Futures rallied, buy programs kicked in, and we advanced 1.4% to 130.625 on
the close.
On a day-to-day basis the S&P 500 advanced only .8%–nothing unusual–but the intraday picture
is a whole new world. The market traded: +1.3%, -1.7%, and +1.4%, for a total swing percentage
movement of
4.4%. That is opportunity! It’s like saying the Dow advanced from Wednesday’s close of 9773 to
close yesterday at 10,203 (plus 430 points). Can you imagine the hoopla?
This is an important point: Part of the late afternoon excitement is often caused by
institutions trying to put money
in the S&P 500 by buying the S&P futures during the day at fair value. When they can’t buy
enough at fair value, they have to rush in and buy many of the S&P stocks–and they must complete
their orders the same day. If the market is rallying and they have to play catch-up late in the
day, it makes for some great new-high intraday breakouts. Thank you S&P futures and program
trading!
Target Stocks Of The Day  Stay with America Online [AOL>AOL] and Wal-Mart
[WMT>WMT] as they continue their march to par. Consolidations and cup-and-handle patterns near
highs that look good if you get entry are Worldcom [WCOM>WCOM], Limited [LTD>LTD]
Avon Products [AVP>AVP], General Motors [GM>GM], Monsanto [MTC>MTC], Tandy [TAN>TAN].
Continuation patterns that look interesting are Ameritech [AIT>AIT], Pharmacia & Upjohn
[PNU>PNU], and Cisco [CSCO>CSCO],
which has pulled back to its breakout level of 105.
Reminder: Patterns may look good but we are six days into this rally without taking a breath.
Be careful and not greedy.
Editor’s note: If you want to learn more about Kevin Haggerty’s trading strategies, click
on the link below to go to his new series of tutorial articles.