Volatility, Volume And Gaps

April 12, 2001
Kevin Haggerty

I
certainly missed the sharpest rally since January
when the Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) rallied 33% in 15 trading days. This one had
advanced +27% from low to yesterday’s high in six days, as measured by the QQQs.

Markets are very rarely
rational, and rallies in bear markets are sharp. Currently, there is a
combination of high cash positions, a good amount of shorts and those Generals
whose perception might be discounting the obvious negative fundamental
information. If you can read the
obvious in the newspapers and then act on it, you will probably be selling those
newspapers soon thereafter!

The NDX decline high to low
was 72%, 4816 to 1349. These stocks all had significant increases in volume with
some gaps. We have no way of
knowing the mix of short covering and real buying, but the more important action
will be how they retrace to their lows and then we see who shows up.

Yesterday was a good
intraday short opportunity in both the DIAs and QQQs. The DIAs gapped up on the
open to 102.49, right at the 103 resistance level plus the 50-day EMA at 103.25
and the 200-day EMA above that at 105.20. They sold off to 99.60 before closing
at 100.18.

The NDX also gapped up big
on the open and hit 1704 by the 9:45 a.m. bar. The 2.0 Volatility Band was 1710
and the 9:45 a.m. bar was a narrow-range reversal bar at a key alert zone. The
QQQs opened at 42.20, +6%, traded down to 40.45, then retraced to the .618 zone
at 41.70 – 41.75, failed, and sold down to 40.50 before closing at 41.

For example, KLAC made a
Double Bottom on 11/13/00 at 25.56, rallied 90% to 48.69, retraced .618 to 31
7/8, then rallied +50% to 47.81. It sold off to the zone again at 31.75 in just
four weeks and has now rallied 37% to yesterday’s high of 43.56. If you look at
the NVLS daily chart, you will see the same action.

These extreme trading-range
moves by many of the Semis have been gifts to daytraders.

Stocks
Today

(June
Futures)

Fair Value

Buy

Sell

7.20

9.00

5.60

Long or short, focus on
those stocks with the volatility and significant volume during this move.Â

In the Semis, for example,
(
AMD |
Quote |
Chart |
News |
PowerRating) went from 18.73 on Monday to yesterday’s early morning high of 25.44
or +36%. Frame those numbers. Look
at the closing range and you see that below 23.25 that it’s an airpocket down to
the 21 – 21.5 level.Â

Do the same thing for all
of today’s mentioned stocks that have had big moves. You know where yesterday’s
highs and lows are, so start with the closing range.

Have
a good trading day.

FYI: We
made some labeling corrections to several of the charts in my most recent
lesson. They should be OK by now.Â

Talk
about it at TradingMarkets World

Gary
Kaltbaum on TradingMarketsWorld ! Gary Kaltbaum will be appearing on the
Intermediate-Term Trading board Thursday, April 19 at 8:00 ET. Be sure to take
this opportunity to chat with and have your questions answered by a leading
intermediate-term trader. Click
here to take your trading to a new dimension.

Volatility, Volume And Gaps

BUY THE FEAR, SELL THE GREED

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