The Calm Before The Storm

• June 17, 2004
• Kevin Haggerty

What Wednesday’s Action Tells
You

The major index market action is summed up
with
just the 4.7 point SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) daily range yesterday. It doesn’t get
tighter than that. That will change today and/or Friday with Triple Witch.
(Please don’t e-mail me about Four Witch because stock futures are not a
factor.)  The Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) finished virtually unchanged at 10,380,
as
did the SPX, closing at 1133.60 vs. 1132 the previous day. The
(
QQQ |
Quote |
Chart |
News |
PowerRating) and
Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating) were similar, as the Nasdaq closed at 1998 vs. 1996
and
the QQQ 36.80  vs. 36.82.

NYSE volume was again very light at 1.17
billion,
the volume ratio neutral at 55, as well as breadth +273. The short-term
numbers
are neutral into this six- to seven-day retreat with the 4 MA of the volume
ratio 52 and 4 MA of advances minus declines at just +61. The calm before
the
storm.

The current major index rally has been on
declining volume and negative indicator divergence, so there is nothing good
to
say about that. The good short-term buy opportunity has come and gone on the
initial 200-day EMA and confluence zone retracement, and any breakout of the
current major index flags on continuing light volume is not smart or
high-probability trading. If you choked on the initial retracement, why do
you
think you can play catch-up now?

Â	Thursday 6/10	Friday 6/11	Monday 6/14	Tuesday 6/15	Wednesday 6/16
IndexÂ	Â	Â	Â	Â	Â
SPX Â	Â	Â	Â	Â	Â
HighÂ	1136.47	H	1136.47	1137.36	 1135.28
LowÂ	1131.33	Â	1122.16	1125.29	 1130.55
CloseÂ	1136.47	O	1125.29	1132	 1133.60
%Â	+0.4	Â	-1.0	+0.6	 +0.1
RangeÂ	5.1	L	14.3	12.1	 4.7
% RangeÂ	100	Â	22	55	 65
INDUÂ	10410	I	10335	10380	 10380
%Â	+0.4	Â	-0.7	+0.4	 0
Nasdaq Â	2000	D	1970	1996	 1998
%Â	+0.5	Â	-1.5	+1.3	 +0.1
QQQÂ	36.84	A	36.32	36.82	 36.80
%Â	+0.7	Â	-1.4	+1.4	 0
NYSEÂ	Â	Y	Â	Â	Â
T. VOLÂ	1.17	Â	1.18	1.34	 1.17
U. VOLÂ	681	Â	163	1.04	 631
D. VOLÂ	451	Â	996	286	 511
VRÂ	60	Â	14	78	 55
4 MAÂ	56	Â	37	43	 52
5 RSIÂ	65	Â	46	56	 58
ADVÂ	1827	Â	552	2591	 1778
DECÂ	1439	Â	2808	753	 1505
A-DÂ	+388	Â	-2256	+1838	 +273
4 MAÂ	+118	Â	-926	-412	 +61
SECTORSÂ	Â	Â	Â	Â	Â
SMHÂ	+0.4	Â	-1.9	+1.4	 -1.2
BKXÂ	+0.5	Â	-1.5	+0.6	 -.07
XBDÂ	-0.7	Â	-1.7	-1.2	 +0.3
RTHÂ	+0.3	Â	-1.0	+0.8	 +.02
CYCÂ	+0.7	Â	-1.2	+0.9	 -.07
PPHÂ	+0.1	Â	-1.0	+.05	 +0.3
OIHÂ	+1.1	Â	-.04	+2.8	 +2.7
BBHÂ	-0.8	Â	+1.2	-.02	 +0.8
TLTÂ	+0.2	Â	-0.8	+2.1	 -0.4
XAUÂ	+1.0	Â	-3.6	+2.8	 +0.6

^next^

For Active
Traders

As I have said in many previous commentaries
when
the major indices go quiet like yesterday, you have to pick up on your
scrolling
of individual stocks because there is always something going on, but you
must
scroll to find it. For example, I was listening in on the TradersWire
yesterday,
and saw Red Hat mentioned three to four times about “wish this and hope
that” as
it drew a line sideways (five-minute chart) all day. In fact, the stock
opened
at 22.45, hit a 22.10 low on the first bar, and then traded to 23.25 by the
10:50 a.m. ET bar, and then went sideways. The RHAT traders were obviously
not
aware of the RST long setup with entry above 22.24 which would have been on
the
first bar, and it ran +4.5% from entry.

Looking at your 40-day 120-minute chart, you
can
see that RHAT has declined 24.5% from the 06/02 29 high. When it took out
the
04/30 22.38 low, it set up the RST buy pattern. The last two 120-minute bars
on
Wednesday, 06/15, were narrow-range doji bars on significant volume, which
very
often signifies a reversal in price, and sometimes a change in trend. Also,
RHAT
was at its 20-day, 30-minute standard 2.0 deviation level of 22.25. Net
net, 
if you trade a stock, you must know a whole lot more about it than what is
on
your immediate five-minute chart. Those of you who are familiar with
sequence
and RSTs have a significant advantage over the plain vanilla RHAT traders
still
living in the “Who’s the axe? Level II world.” Wake up and smell
the roses.

Today’s
Action

The major indices are sitting on option
expiration, so if you are a futures/index proxies trader, there is nothing
you
can do but react to any change in direction, and if it is extended enough
relative to your timeframe, you will most likely fade it. I have included
the
SPX 120-minute chart with the current channel from the 1142 high to the 1122
low, so you have those parameters for potential price action today. The 34
EMA
is 1129.75, and after the 1122 low, there is the .382 retracement and lower
channel in the 1117 – 1120 zone. Price comes out the top above 1135, and
then
1137.36 for continuation. You also must look at today’s volatility bands for
more confluence. The five-day, five-minute 2.0 regular standard deviation
band
levels are 1138.50 and 1123.50, with the 1.0 band at 1135 and 1127.50. Now
you
have something to watch.

Triple Witch is also a good time to keep
scrolling for big-cap Slim Jims which can be explosive if it is an active
expiration.

Have a good trading day,

Kevin Haggerty