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Pastimes : All Clowns Must Be Destroyed -- Ignore unavailable to you. Want to Upgrade?

To: KeepItSimple who wrote (9168)	2/13/2000 6:57:00 AM
From: re3	Read Replies (1) \| Respond to of 42523

from the toronto star feb 13 : After-hours traders may tip us into crash Last week's wave of hacker attacks that paralyzed some of the Internet's best-known Web sites prompted the following comment from U.S. Attorney-General Janet Reno: ``We are committed in every way possible in tracking down those who are responsible.' I think I know who the culprits are. The front page of The Globe And Mail business section dated Jan. 29 showed an artist's rendition of the two: a male and female, about 50 years old. They were boomers clutching mutual fund literature, travel brochures, skis, golf clubs and a notebook computer. They did not fool me because I can spot a do-it-yourself investor in any disguise. This new breed of investor is flocking to the discount brokers mainly because of the Internet. Such an investor, armed with a mouse, now has the confidence and power to manage his or her own equity portfolio. The hackers that brought down some Web sites last week did so by replicating the same action through hundreds of computers. The do-it-yourself investors also have the same potential to unintentionally cripple the sites of their online brokerage services. The next market correction could evolve into a crash if too many online investors do the same thing at the same time. The danger is imminent and you should protect yourself. The problem is not the manic day trader. It is the quiet after-hours decision maker. Consider the routine of our Mr. Tab Numlock, who owns a busy hardware store. His store takes up all his daytime hours, so he makes his trading decisions in the evening after the markets close. Late at night, just before retiring, Numlock accesses his account and then enters an order to buy 1,000 shares of Skyhigh.com at the opening. Thousands of Nasdaq investors do this every night. The next day the Nasdaq gaps up at the open - substantially higher than the previous day's close - because of the influx of opening buy orders. I've looked at a daily chart of the Nasdaq composite index and to my horror found a gap opening to the upside almost every day . I used my computer to filter the Nasdaq opening gaps over the past 12 months and discovered a potential problem caused by the influx of opening buy or sell orders. It appears that if the Nasdaq opens up on the day, it probably will close higher for the day. This will then stimulate more after-hour investors to repeat the process and place buy orders before the opening. But the opposite also happens once the market starts to slide. Legions of after-hour investors place sell orders for the opening on the following trading day. It starts with a reversal, in which the index opens higher but then closes down on the day, and below the low of the previous day. Nasty corrections can follow. On July 21, 1998, for example, the Nasdaq reversed and slid non-stop until it had racked up a 33 per cent loss by Oct. 8 of the year. On July 19 last year, the Nasdaq reversed again and by Aug. 10 was down 15 per cent. The Jan. 24 reversal this year clipped 13 per cent off the index in four days. The next reversal could cause the after-hour investors to flood the market with opening sell orders and the following day could unravel into a full-blown one-day crash. This could happen at any time, and you should protect yourself by avoiding stocks likely to get hit with opening sell orders. You should also place orders only during market hours, especially if you buy at the market, that is, at whatever the going price is. That's like walking through a door with your eyes closed; you've got no idea what's going to come out at you in that room. An unfounded rumour (most of them are) might come at you like a baseball bat. You'll get no chance to decide to wait and see before you pay for a stock that soared for no good reason. If your broker provides poor service during the day, move your account because, when it comes to service, you get what you pay for. -------------------------------------------------------------------------------- Our chart this week shows weekly closes of Angiotech Pharmaceuticals Inc. Note the sideways trading range of the stock from about December, 1998, to December, 1999. I have drawn two parallel lines to identify the narrow trading range. This is called a line formation. When a stock breaks upward out of this formation, accompanied by a volume increase, a meaningful advance is almost guaranteed. The trick was to buy the stock in the $15 range shortly after the Dec. 10, 1999, breakout. At the current $70 range, however, be willing to give the stock away to a potential bag holder. I don't care how good the story is. Leave something for someone else and move on, and look for another low-risk candidate.