Windfall

December 6, 2000
Kevin Haggerty

The 3
standard deviation volatility band move and then some for the S&P 500
and NDX 100 — I haven’t seen that kind of one-day price persistence in a long
time. The NDX 100 gapped open
+3.7% at 2649 with the 1.28 volatility band at 2666 which was exactly the high
of the 9:35 a.m. bar. It backed off only four bars before resuming the trend.
Many of the chosen momentum stocks only came in 1 to 2 points and a few of them
held the open. The next possible reversal pattern didn’t come until 2751 just
above the 2729 2 volatility band. It was a narrow-range bar with both open and
close at the bottom of the range.Â

After entry, there was only
a two-bar pullback before it reversed and ran to the third reversal entry pattern at
2793. Two stopped out trades so far and then the 2793 bar which was an outside
reversal bar closing at the bottom of the range. The pullback lasted nine bars
and retraced to the .38 level before you got a Kings and Queens pattern, which
was the beginning of the quest for the third volatility band level of 2817. If
you took this one, you made a few pennies but not much.

The NDX proceeded to rally
to 2852.90 high and closed at 2851.90. The SPX had a similar journey except that
it didn’t even retrace to the .38 level before it traded up to its 3 volatility
band of 1377 and that’s where it closed +3.9% on the day. The NDX ended +11.7%
led by the SOX +10.1% and the Internet indexes up +11.2% and +13.5%
respectively. The Russell 2000, the RUT, chipped in at +4.6% and the basics
rested a bit as the Dow advanced only 3.2%.

All of you RST buyers in
the S&P 500 should be happy with the windfall move, as should all of you
that had the courage to put a high risk-reward trade on at the .618 RT level for
the NDX 100 which got to the lower 2% bands but closed above 2496 that day at
2506.54. Hopefully, some of you that didn’t play in your long-term account at
least put on the QQQ bull spread. It is never easy at the high risk-reward zones
when all the empty suits are singing a doomsday song, but as one of my astute
subscribers tells me, “Speculation, at its truest sense, calls for
anticipation.” Yesterday’s
S&P 500 RST buy pattern on the daily chart came exactly at the .38 RT level
framed on the weekly chart from the 10/98 low of 923 to the 3/24 15523 high.
Coincidence? Hardly. It happens most of the time. That kind of convergence leads
most often to high-probability trades.

Yesterday, total volume was
1.4 billion with 1 billion up and 315 million down. Advancers led decliners by
+1227. Volume ratio was 76.
FYI, on 10/31, the S&P 500 rallied
+2.2% on volume of 1.4 billion, with 992 million up and 325 million down.
Advancers led decliners that day by +1167 with a volume ratio of 75. The NDX
advanced +6.5% that day, but more importantly, the +6.5% move
came at the .50 RT level on the weekly chart framed from the 10/98 low. Just
another coincidence on the way to the bank.

The NDX made four higher
highs after that extreme day, as did the S&P 500. Hopefully,
this explosion will carry into year end and we will be able to play some
continuation trades from the daily charts if the crowd psychology persists and
the herd keeps moving in our direction, which is up, and especially in the funny
money like the chosen ones. Yesterday, 16 of the 25 chosen ones were up 20% or
more. The shorts had track shoes
on yesterday. After the pullback dust settles, we will see how strong the real
Generals team is.

face=”arial, helvetica”>(December Futures)
Fair Value	size=2>Buy	size=2>Sell
2.90	4.10	1.80

Pattern
Setups

Also today, obviously after
yesterday’s run if they open them up a little bit, look for some opening
reversals on quick shorts but obviously keep tight stops.

Have a good trading day.

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Windfall

BUY THE FEAR, SELL THE GREED

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