If You Were Prepared, You Took These Trades
What Thursday’s
Action Tells You
It was a choppy day for the major indices, with
the SPX closing at 1050.07, +0.3%, while the Dow was 9792, -0.1%. The Nasdaq
ended at 1950, +0.6%, QQQ 35.47, +0.8%. The SMHs led the sectors, closing at
39.59, +1.1%. The other major sectors gave us little information and small
changes both red and green.
NYSE volume was 1.37 billion, volume ratio 69,
and breadth just +551, which is weak relative to a volume ratio of 69. This
tells you that the action was concentrated in the big cap stocks and that’s not
a surprise going into option expiration.
None of the major indices closed below the low of
the high day, and in fact the SPX held above and bounced off yesterday’s low
level. The SPY hit an intraday low of 104.68 on the first bar vs. the previous
day’s 104.64 low, and then traded up to 105.73 by the 1:00 PM bar before
reversing down to 104.85, then back up to a 105.43 close. That kind of elevator
action is just chop.
For Active Traders
In yesterday’s commentary we said on any early
down on the semis, daytraders should look for long side intraday setups because
there would probably be some more buying at lower prices after the emotional
rush the previous day. That’s exactly what we got, and I have included a chart
of the SMH, which gave us a clearly defined 1,2,3 lower bottom long setup. After
Wednesday’s 38.94 low, the SMH broke the downtrend line and then traded up into
the close, so that was swing points 1 and 2. Swing point 3 was yesterday morning
on the opening two bars, each with a 38.86 low, which was right at the 240-EMA.
Entry was on the reversal of the previous 38.94 low. The first rush was to 39.46
and then chopped its way up to 39.60. Net net, the trade was anticipated the
previous day, and then yesterday you got a defined 1,2,3 lower bottom reversal
pattern with confluence at the 240-EMA, so you took the trade because you were
ready for it. INTC had the same pattern and reversed the previous day’s 31.62
low, trading up to 32.26. Thank you, Generals, for trying to smooth out the VWAP
(volume weighted average price).
AVID and SNPS, two momentum stocks mentioned
yesterday, gave you excellent trades from inflection points. AVID made a 52.06
low on the second bar vs. the 50-day EMA of 51.85, then took off with the market
to a 54.91 high. SNPS
reversed the 200-day EMA of 28.29, trading up to 29.87.
APOL gave you a
short trade after opening up, trading to 63.25 on the first three bars, then
reversing the 63.29, 89-day EMA and all of the 8, 20, 60 and 240-EMAs on the
5-minute chart, trading down down to a 61.52 low. You should check all three of
these 5-minute charts yourself, as time constraints didn’t allow me to include
them in today’s commentary.
The key point I am making with these momentum
stocks is that they had traded back to inflection points, we put them on the
daily focus list, and you were ready to take the good intraday setup. They would
not have happened unless you were prepared for it in advance, because you would
have been scrolling your intraday charts without having checked the higher time
frame first.
For Today
Option expiration is today and you’re just
guessing if you try to anticipate any directional activity, so keep your powder
dry unless there are some compelling setups. It has to jump out at you or don’t
take it. For example, just by looking at the 5-minute chart, you know where the
next SPX RST buy pattern will set up, and that’s below 1043.15. That will be
where a new swing point low occurs, and then you count to the left of the chart
and you will see the symmetry. (This is a reminder for the traders who have
learned from the seminar materials)
On expiration day, you are better off, on
balance, making the futures, index proxies and HOLDRs your focus. In individual
stocks today, I favor the first hour strategies, and then in the afternoon
making sure you scroll the intraday charts for Slim Jims, which often provide
opportunity on expiration Friday. Also, this corner will carry a few cheap index
puts over the weekend. You never know — just ask Tony Saliba.
Have a good weekend,
Kevin Haggerty
