Day Two

As to be expected, most of the decline was on the opening yesterday, as the market makers and specialists took the opening order flow down deep, which is a given with this kind of emotion. The QQQs opened at 31.25, down -8.3% and closed at 31.20. After the deep discount opening, they rallied to a 32.80 intraday high before 11:00 a.m. and then it was a trend down for the remainder of the session.

Once again, there was opportunity with Trap Doors and volatility band trades regardless of whether you played the index proxies or individual stocks. The (DIA | Quote | Chart | News | PowerRating) opened at 90.50, -6.2%, then rallied to 92.30 before trending down to close at 89.10, -7.6% and taking out the April lows. It was a good pop from the extreme third standard deviation bands of 91.20 on the daily charts and 90.40 for the weekly. These bands are based on historical volatility of the Dow and percentage moves away from a longer-term price trend of closing prices. All of the major rallies have started from the second to third standard deviation bands. Be prepared to take advantage of any upside move today.

The (SPX | Quote | Chart | News | PowerRating) was the best of the bunch, closing at 1038.77, -4.9%, while the NDX 100 (NDX | Quote | Chart | News | PowerRating) closed almost on the opening at -8.3%. Yesterday ran the gamut of the half-point fed funds rate cut and also the discount rate cut, in addition to many corporate buybacks, which was bolstered by more liberal rules by the SEC. Circuit breakers were implemented and OPEC made noise about increasing oil production to offset shortages and any spike in prices. Let's see how they do when the shooting starts. Consumers will certainly take a bunker mentality, and what was slow prior to the attack will get even slower. How good can that be?

Yesterday's extreme emotional NYSE volume of 2.4 billion was double its average volume and was bolstered by the many programs with the Triple Witch expiration this week. It was just over two billion declining volume and only 336 advancing, with a volume ratio of 14. Decliners led advancers by a whopping -2067. The Nasdaq was as lopsided, but surprisingly, only traded 30% more than its average volume. For daytraders, the mental exercise of what's going to happen serves no function because we are in uncharted waters. But we do know volatility reverts to the mean, and you must be able to pull the longside trigger as well as short.

The sectors performed by the book yesterday, with gold (XAU | Quote | Chart | News | PowerRating) up, drugs (DRG | Quote | Chart | News | PowerRating) slightly positive, and healthcare stocks a push. Other defensive stocks, like foods and beverages, served as a temporary haven. The semis and brokers led the decline at -9.2% and 9.4%. No need to mention the airlines and related freefall. (AMR | Quote | Chart | News | PowerRating) was one of the many excellent deep-discount fades on the opening.

The scorecard from yesterday indicated you got killed in your 401(k)s and IRAs, while the market makers and the specialists made a killing. If you learn how and when to fade emotion, you will also look much better in your P&L.

Stocks Today

Primary focus should be on the QQQs, DIAs and (SPY | Quote | Chart | News | PowerRating)s because the market reflex moves are easy to read and your execution will be much better than individual stocks. This action will be from your intraday charts. You know where yesterday's lows are and you also know how to play an upside reversal of those lows.

On the longside on the daily charts, some defensive stocks that set up if they come for these again today are (BAX | Quote | Chart | News | PowerRating), (ABT | Quote | Chart | News | PowerRating), (FNM | Quote | Chart | News | PowerRating), (PG | Quote | Chart | News | PowerRating), (CL | Quote | Chart | News | PowerRating) and (GAS | Quote | Chart | News | PowerRating).

On the intraday basis, I want to narrow the focus. I'm going to look at (VRSN | Quote | Chart | News | PowerRating), (BRCD | Quote | Chart | News | PowerRating) and (VRTS | Quote | Chart | News | PowerRating). Also, in the biotechs, I want to stay with the (BBH | Quote | Chart | News | PowerRating)s, which closed at 112.25. The low end of the range since mid-July hit on three different occasions is the 110 level, so we're at a zone where it should bring in some activity. The (SMH | Quote | Chart | News | PowerRating)s as the proxy for the semis closed at 35.90 with an intraday low of 35.75. The April lows are down at the 35 level, so there should be good two-way action down here.

On the shortside, stay with the market proxies, which are the QQQs, DIAs and SPYs, for easier execution. We are at extremes on all of the market indicators, in addition to the standard deviation, so it will be a wild ride, which is a great opportunity for daytraders.

Have a good trading day.

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

Five-minute chart of Monday's NYSE TICKS

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