Why You Shouldn’t Expect Much Upside Today
What Friday’s Action Tells You
On Friday, the reversal of the previous two days’
lows comes after seven straight days of higher lows and highs for the SPX
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PowerRating) and Dow
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PowerRating). The 20-period momentum oscillator that I
look at was at the same overbought level as the June 17 high which preceded a
-5.2% retracement to 962.10. The short-term overbought condition was evident
just with the volume ratio four-day moving average which was at 74 Wednesday and
69 on Thursday. The short-term rubber band was stretched, so any reflex down
should not be surprise. The Dow rally high is 9609 vs. the 9600 resistance line,
and closed Friday at 9503. (See the Aug. 29 commentary for chart.) The SPX
closed at 1021.39, -0.6%, as did the Nasdaq
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PowerRating), which closed at
1858. The Dow was -0.9%, and the
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PowerRating)s closed at 33.94, -0.7%. NYSE volume
was 1.4 billion, volume ratio 41, and breadth -376.
In the sectors, the semis finished slightly
green, as the
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PowerRating)s made a new intraday rally high of 38.50 and new closing
high of 37.81. This was on the second highest volume day for the SMHs since the
20.36 February retracement to the 17.32 October absolute low. As I said in
recent commentary, now that all of the media analysts and retail have the
semiconductors front and center, they are just a trading vehicle in this corner,
nothing else. Only a really good air pocket down would change that opinion, not
more strength. The easy money has been made in position, as the SMHs are now
+122% since the October lows to Friday’s 38.50 intraday high, and the 37.81
close leaves it contained within the confluence zone.
On Friday, all sector SPDRs were red, 75% of all
basic and capital goods stocks closed down, while over 80% of the precious
metals finished green, with the XAU +1.6%. More than 85% of the retail sector
finished on the downside. Technology was clearly the better performer on Friday.
For Active Traders
The 8:30 a.m. ET jobs report gave traders the gap
down reaction on Friday, which set up some Trap Doors. The initial reaction down
on the SPX was to 1022.75, holding the previous two days’ lows of 1022 and
1022.19. Entry was above the 9:40 a.m. SPX signal bar high of 1024.18, or 103.02
on the
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PowerRating) and above 1024 on the E-mini. This Trap Door contra move was
good for just over 5 points, as the SPX traded to 1029.21 on the 11:25 a.m. bar
vs. the previous day’s high of 1029.17. After the test of the previous day’s
high and low, it was trend down into the SPX 1018.19 intraday low, then a quick
5 point move to 1023, closing at 1021.29. Not a very dynamic day for index
traders. I have included the SPY chart in today’s commentary.
The SMHs had acted better on the initial jobs
reaction and gave you a flag breakout above 37.40, which was also above all of
the five-minute chart 8, 20, 60 and 240 EMAs. The SMHs traded up to 38.50,
closing at 37.81. The chart in today’s commentary ends with the initial move to
38.42 on the 11:25 a.m. bar, but it made the 38.50 high on the 12:05 p.m. bar
(not shown).
Today’s Action
Starting out this morning at 7:30 a.m., the
futures are small green, with the Dow futures +10, Nasdaq +1, and S&Ps +1. I
don’t expect them to carry through much on the upside following any small
opening up. After the seven-day recent up move, you have to be ready for more
than one day down, so short side setups will be favored, especially on any rally
today.
Have a good trading day,
Kevin Haggerty
