Zone

February 7, 2002
Kevin Haggerty

The
(
SPY |
Quote |
Chart |
News |
PowerRating)s traded down early and
held the 106.06 intraday low for a double bottom, then rallied to 109.56,
closing at 108.70 vs. its .38 retracement to the September low of 108.74. If you
waited for more upside confirmation of the early rally, you probably took the
breakout of the symmetrical triangle above 108.62. If you didn’t, you should
have.

The
(
QQQ |
Quote |
Chart |
News |
PowerRating)s gave us
good opportunity with a double bottom off the 35.70 intraday low, and again
above the eight-period moving average of the high and eight-period moving
average of the low from a symmetrical triangle. The .50 retracement to the
September low is 35.22, along with some point-and-figure support.

NYSE volume was again
heavy at 1.658 billion, a volume ratio of 37, and breadth negative at -832.
After the narrow-range reversal top of 1130.20 on Feb. 11 for the
(
$SPX.X |
Quote |
Chart |
News |
PowerRating), which was also right at the declining 20-day EMA, the index has
made three lower lows and highs after yesterday’s action. If you check your
daily chart, you will see the range has narrowed each day. The NYSE volume ratio
has gone 14, 28, 37, as range narrowed, and yesterday was the fourth straight
declining day. It only means short-term oversold with diminishing pressure.

The .50 retracement of
105.90 on the SPY is a magnet, but before it gets there, we can get more upside
reflex after any early emotional selling. The -DMI of 37.5 is stretched above
the +DMI of 13, which is in oversold reversal territory. The only thing this
does for us is put the alert light on. We’ve done very well selling retracements
and then buying downside moves at various inflection points.

We start today still
oversold, especially in the Nasdaq. Before I left last night, the QQQs had
traded down to 35.45 vs. the .50 retracement to the September low of 35.22,
which is also the other confluence. I see right now in pre-market trading
they’re trading at 36.17. The .618 retracement to the September low is 33.33,
just 5.4% below. This .50 to .618 zone will produce a good reflex bounce. I also
see that 10% of the NDX 100
(
$NDX.X |
Quote |
Chart |
News |
PowerRating) is now trading under $10. It looks
like they will have to reevaluate the composition of the index once again, or
else call it the NDX 50.

This Cisco
(
CSCO |
Quote |
Chart |
News |
PowerRating)
and what John Chambers says is getting old. Cisco was yesterday’s newspaper and
the media beats it to death like it’s the bellwether of the world. Tell me about
82 to 11, now trading at 18.60. Cisco only becomes today’s newspaper when it
breaks out of the 11-month head-and-shoulder base it’s in right now. Until then,
it falls into the category of "Who cares?"

I don’t have a clue as to
whether the news fear washes the QQQs directly to 33.33 before a bounce or
whether the reflex comes from the 35 to 35.50 level, which we actually got to
last night after-hours. But what you can control is to take any good intraday
long setups in the zone with tight stops because the trading reward to risk is
good.

Stocks
Today

Have a good trading day.

Five-minute chart of
Wednesday’s SPX with 8-, 20-,
60- and 260-period
EMAs

Five-minute chart of
Wednesday’s NYSE TICKS

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