The Scenario For This Week

July 12, 2004
Kevin Haggerty

What Friday’s Action Tells
You

It was simply another down week for the major
indices, and there was nothing positive about the market action that was a
week
with a lower high and low. The SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) closed at 1112.81, -1.1%
for
the week, and +0.3% on Friday. NYSE volume was 1.19 billion on Friday with
the
volume ratio at 63 and the 4 MA now 41. Breadth was +855, with the 4 MA
at -21,
telling you nothing. Friday’s green day came off a 4 MA of the volume ratio
of
35 and 5 RSI of 20, so any reflex up was no surprise.

The XBD (brokers) was the downside leader for
the
week at -4.3% with an intraday low of 118.72 on Friday. If you saved the
chart
from the previous commentary, you see that the initial downside price zones
to
be aware of are 117.74 – 116.54, then 108 – 106.44. The
(
SMH |
Quote |
Chart |
News |
PowerRating) —
semis —
had a green day on Friday at +1.9%, but still finished the week in the red
at
-0.7%. The semis, after the -1.9% day on Friday by the SMH, still remain in
the
low end of the trading range of the past 11 weeks, so it is a two-way price
action zone. The XBD closed at 119.37, below its previous 10-week range, so
check your resistance levels just above and watch your price action zones
below.

Since the 03/05 116.95 high, the SPY has
declined, high-to-low, -6.9% to 108.85, rallied +6.0% to 115.41,
declined -6.4%
to 108.06, rallied +6.4% to 114.94 and has declined -3.3% to the 111.20 low
on
Thursday, closing at 111.73 on Friday. It has to go lower to reach a
decision
zone and to get short-term oversold. The 200-day EMA is 109.79, while there
is
immediate overhead resistance at 112.92, 112.80 and 112.44, which are the
20-,
50- and 89 day EMAs, in addition to the recent 20-day range resistance which
is
in the same zone. Net net, price is between price action zones, which means
in
this corner daytrades only.

The Nasdaq Composite
(
$COMPQ |
Quote |
Chart |
News |
PowerRating) closed
at
1946 on Friday with the 1935 200-day EMA just below. After hitting 1935 on
Thursday, the Composite reflexed to 1961 on Friday, and that was off a 5 RSI
of
19. The Nasdaq finished the week -3.1%, while the
(
QQQ |
Quote |
Chart |
News |
PowerRating)s, at 35.75, was
-2.9% for the week. Technology and brokers led the downside last week, and
that
is not what the market wants to see if it is to go higher.

^next^

For Active
Traders

I have included the QQQ five-minute chart
which
shows the RST entry late Thursday for those traders that carried it
overnight
because of the extended zone. First, there was a positive divergence in the
8,3,3 stochastic where the stochastic made a higher bottom as price made the
35.55 lower low. The divergence is strongest when the first bottom is below
the
20 line and the second bottom is at or above the 20 line, as it is in this
case
(reverse for sells). The primary signal that oscillators like stochastics,
MACD
and RSI give you are 1. divergence (which is the strongest), 2.
overbought/oversold, 3. crossovers.

There was confluence at the 35.55 level,
which
was the -2.0 standard deviation band (20-day, 30-minute) at 35.55, and the
40-week EMA just below at 35.35. The .618 retracement level to 39.11 from
the
06/30 37.90 high is also 35.55. The next morning you had a negative
divergence
as price made a higher high of 36.04 on the 10:10 a.m. ET bar and right at
the
240 EMA. This is a common reversal time period, and the QQQ was +1.4% in
less
than an hour’s time from the 35.55 low. The very next bar was a lower high
and
low, and it was also the 13th Fib count bar, including the 35.55 low bar. It
was
a decision zone to take off at least half the trade, provided your time
horizon
was just a day or two.

Today’s
Action

The QQQs closed at 35.75 and remain more
extended
than the SPY or DIA. The 20-day, 30-minute -2.0 band is now about 35.50,
while
the SPY closed at 111.73 and above its -1.0 band at 111.50. On any upside
reversal today, the QQQ will give you more bounce than the SPY, or for hedge
traders, it would be long QQQ/short SPY or DIA. The better scenario this
week is
for early red preceding an upward time bias into 07/14 – 07/17. It you just
trade major index futures or proxies, you must avoid pressing for trades
that
are not clearly defined. This will always get you in trouble as you force
the
trade. Traders that also use the individual stocks are way ahead of the
game, as
there is always something going on that will identify by scrolling the
individual stock charts and also the volatility band list of the optionable
stocks that is a service of the TradingMarkets site.

Have a good trading day,

Kevin Haggerty

The Scenario For This Week

BUY THE FEAR, SELL THE GREED

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