Make Your Semiconductor Focus List

• June 18, 2004
• Kevin Haggerty

What Thursday’s Action Tells
You

At the close, the SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) and Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) were almost unchanged, and in fact, that has been the case for
the
past three days, as the Dow has closed at 10,380, 10,380 and 10,378
yesterday.
The SPX closed at 1132.03 yesterday vs. 1132 and 1133.60 on Tuesday and
Wednesday. The early gap down and program action provided opportunity for
traders yesterday with Trap Door setups around 10:15 a.m. ET, then a contra
up
trend into the 2:10 p.m. period before fading into the close.

NYSE volume was 1.3 billion, the volume ratio
neutral again at 56 and the 4 MA of the volume ratio at 51 which explains
the
“no decision” trading the past few days. The breadth yesterday was
+500, but the
4 MA just +89 and neutral like the volume ratio.

The green leadership yesterday was in the
XAU,
+0.9%, energy, with the
(
OIH |
Quote |
Chart |
News |
PowerRating) +0.8%, and bonds, with the
(
TLT |
Quote |
Chart |
News |
PowerRating) +0.7%
which carried the XLU (utility SPDR) to +0.7%. Technology was red, led by
the
semis, with the
(
SMH |
Quote |
Chart |
News |
PowerRating)‘s -3.0%. The
(
QQQ |
Quote |
Chart |
News |
PowerRating) was -0.9% and Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating) -0.7%. The brokers were also red at -0.7%.

The semiconductors continued their trend down
yesterday and are now a Below The Line sector, which means price is
below
the 20-day EMA, which is below the 50-day EMA and both are below the 200-day
EMA. I have included the daily chart, which shows the initial retracement to
the
rising 200-day EMA and subsequent +13.9% rally. It declined again below the
200-day EMA -17.8% to 34.50 and the .382 retracement zone to the 17.32
October
2002 low.

We got a +13% rally from this zone to 39,
which
was also the down trendline where it faded. This flag retracement to the
200-day
EMA which is rolling over was broken to the downside the past two days, so
the
higher probability is one of the new zones I have outlined on the chart will
be
reached. Price has more downside before it is at a good oversold level and
39 is
now a clear upside hurdle if there is to be an attempt at a higher fifth leg
above 45.78.

The SMH hit its high on 01/12 and started its
decline. The SPX, which is currently in an Above The Line condition,
hit
its 1163 high on 03/05/04. The key point is that the semis and SPX will not
remain in the current Above the Line and Below the Line divergence very
long. If
there is to be a higher fifth leg, which for the SPX is above 1163, then the
semis will probably be a leader from the oversold condition at one of the
zones
outlined in the chart. If the SPX rallies and the semis don’t, with
leadership
coming again from defensive issues, then it would be very
negative.

Â	Friday 6/11	Monday 6/14	Tuesday 6/15	Wednesday 6/16	Thursday 6/17
IndexÂ	Â	Â	Â	Â	Â
SPX Â	Â	Â	Â	Â	Â
HighÂ	H	1136.47	1137.36	 1135.28	1133.58
LowÂ	Â	1122.16	1125.29	 1130.55	1126.88
CloseÂ	O	1125.29	1132	 1133.60	1132.03
%Â	Â	-1.0	+0.6	 +0.1	-0.1
RangeÂ	L	14.3	12.1	 4.7	6.7
% RangeÂ	Â	22	55	 65	77
INDUÂ	I	10335	10380	 10380	10378
%Â	Â	-0.7	+0.4	 0	-.02
Nasdaq Â	D	1970	1996	 1998	1984
%Â	Â	-1.5	+1.3	 +0.1	-0.7
QQQÂ	A	36.32	36.82	 36.80	36.40
%Â	Â	-1.4	+1.4	 0	-0.9
NYSEÂ	Y	Â	Â	Â
T. VOLÂ	Â	1.18	1.34	 1.17	1.30
U. VOLÂ	Â	163	1.04	 631	702
D. VOLÂ	Â	996	286	 511	552
VRÂ	Â	14	78	 55	56
4 MAÂ	Â	37	43	 52	51
5 RSIÂ	Â	46	56	 58	54
ADVÂ	Â	552	2591	 1778	1875
DECÂ	Â	2808	753	 1505	1375
A-DÂ	Â	-2256	+1838	 +273	+500
4 MAÂ	Â	-926	-412	 +61	+89
SECTORSÂ	Â	Â	Â	Â
SMHÂ	Â	-1.9	+1.4	 -1.2	-3.0
BKXÂ	Â	-1.5	+0.6	 -.07	-.06
XBDÂ	Â	-1.7	-1.2	 +0.3	-0.7
RTHÂ	Â	-1.0	+0.8	 +.02	-0.5
CYCÂ	Â	-1.2	+0.9	 -.07	+0.2
PPHÂ	Â	-1.0	+.05	 +0.3	+0.2
OIHÂ	Â	-.04	+2.8	 +2.7	+0.8
BBHÂ	Â	+1.2	-.02	 +0.8	-0.5
TLTÂ	Â	-0.8	+2.1	 -0.4	+0.7
XAUÂ	Â	-3.6	+2.8	 +0.6	+0.9

^next^

For Active
Traders

The SPX five-minute chart from yesterday is
included, which shows you the Trap Door long entry in confluence with the
.236
retracement to 1076, yesterday’s 1.0 volatility band and the 2.24 Fib
extension
of the last leg up on Wednesday. The SPX topped at the .786 retracement to
1135.26, then closed at 1132. There was a positive divergence in the 5 RSI
and
the slope direction change in MACD, with the cross confirming the initial
entry.
The 8,3,3 slow stochastic gave you the same information. I mix the
indicators
just to show you a different look, as not everyone uses the same indicators.
I
always favor the momentum-type indicators vs. the more lagging indicators.

Net net, the contra move started on the 10:15
a.m. bar with confluence and did not resume the direction of the open other
than
small higher low retracements. Not a moonshot by any means, but it certainly
beat trading the futures/index proxies on Wednesday.

Today’s
Action

It’s Expiration Friday and major index levels
are
virtually unchanged after yesterday’s trading, so start with the SPX
chart/levels from Wednesday’s commentary. The best opportunities will come
on
any early Trap Door reactions, and maybe some Slim Jims if there is some
aggressive expiration action. At 7:30 a.m. ET as I do this, the futures are
red,
with the S&Ps -3.60, Dow -26 and Nasdaq -7.

Start making your semiconductor focus list of
the
leading downside stocks, like
(
TXN |
Quote |
Chart |
News |
PowerRating), which are now reaching sequence
zones,
and also the laggards where you might get some short opportunities, like
(
INTC |
Quote |
Chart |
News |
PowerRating) and
(
MCHP |
Quote |
Chart |
News |
PowerRating).

Have a good trading day, and have a great
weekend.

Kevin Haggerty