'Above The Line' Focus List Stocks Continue To Give Good Opportunities

The market action yesterday was major indices flat, gold, bonds (TLT +0.7%) and semis (SMH +0.6%) up, with energy (OIH -2.1%) and basic materials (XLB -0.5%) down. NYSE volume was again on the lighter side at 1.29 billion shares, the volume ratio not decisive at 43, as was breadth -124. That kind of holding action is not daytrader friendly as you need the volatility. You would expect the Generals to protect last year's closing SPX ($SPX.X | Quote | Chart | News | PowerRating) price of 1211.92 as they would certainly prefer the six-month report card to be positive. That applies more to that majority of mutual funds that are now simply quasi-index funds charging active money manager fees. What a racket. The SPX finished the day at 1213.61, -0.2%, Dow ($INDU | Quote | Chart | News | PowerRating), 10,600, -9 points, (QQQQ | Quote | Chart | News | PowerRating), -2 cents to 37.85 and Nasdaq ($COMPQ | Quote | Chart | News | PowerRating), 2091, +3 points. It was uneventful as the daily range was just 5.3 points for the SPX from 1217.13 - 1211.86.

In spite of the dull major index trading, there were individual stock "Above the Line" focus-list opportunities like (MRVL | Quote | Chart | News | PowerRating) with good entry from Monday's retracement to the 50-day EMA and (COH | Quote | Chart | News | PowerRating) from three-day retracement to the 10-day EMA, which is in a strong momentum phase. The (OIH | Quote | Chart | News | PowerRating) had an RST sell entry below 102.83 yesterday (daily chart) which traded down to 101.10, closing at 101.19. The "General's Pullback" from the 84.16 low on 05/16 to Monday's 104.57 high was a nice +24.2% move in just 24 days. (The "General's Pullback" is covered extensively in the 2004 seminar archive and Sequence Trading module.)

Despite the SPX trading to 1219.55 on Friday, the SMH remains at 34.50 and the XLB is back below its inverse head-and-shoulder neckline with a 28.35 close yesterday after trading to 29.10 last week on the initial breakout with significant volume. The three-day retracement has been on declining volume, which is a positive, so watch for a second-entry trade if the Generals come for them this week. The other early watch index is the $TRAN (Dow Jones Transportation index) which closed at 3568 and just above the 40-week EMA of 3506. This index more than doubled from 1918 to a 3890 high, then gave a 1,2,3 HT entry below 3824 which traded down to 3348 in April. This was a -12.4% move for sequence traders that traded the related individual stocks. The 1,2,3 HT entry followed the negative divergence in the 14,3,3 Full Stochastic (see chart). This index will precede the coming SPX bear cycle decline and give you an early alert on any decision you make about longer-term equity allocations.

Have a good trading day,

Kevin Haggerty

P.S. I will be referring to some charts here: www.thechartstore.com in the future.