All The Ingredients Are In Place For More Volatility

  • March 10, 2005
  • Kevin Haggerty

What Wednesday’s Action Tells
You

Crowd psychology took over as the media hype
reached the highs about the $CRB continuing to make new highs, along with
crude
oil trading above $55 again and the financials taking a hit with the TLT
(the
bond proxy) -1.6%, the Dow Utilities -1.9% and the BKX -1.5%. On the
increase in
crude, the Generals took money off the table, the same as they did the last
time
price was at $55 with the
(
OIH |
Quote |
Chart |
News |
PowerRating) -2.5% yesterday and the XLE -2.8%.

The SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) and Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating)
made their highs into this 03/08 key time date on 03/07 and had the initial
air
pocket on 03/08 as the SPX declined from 1225.31 to close at 1219.43,
followed
by yesterday’s decline to 1207.

There was no question about the herd
mentality
yesterday as NYSE volume stretched 1.7 billion shares, with a volume ratio
of 22
and down volume of 1.3 billion shares. The breadth was -2018, which is the
most
negative since 06/14/04.

The
(
DIA |
Quote |
Chart |
News |
PowerRating), which was an RST short below
109.30, the low of the high day on 03/07, with entry on 03/08, closed at
108,
which is back to its 20-day EMA of 107.91. The initial DIA Trap Door long
trade
yesterday had entry above 108.79 after the 10:10 a.m. ET 108.69 low bar. The
contra move ended at 109.23 and the 240 EMA, then resumed the direction of
the
open. The next long reversal was after the 108.25 low vs. The 1.5 volatility
band at 108.24. Price reversed to 108.66 and then trended down again from
2:00
p.m. into the 108 close. There were similar setups for the
(
SPY |
Quote |
Chart |
News |
PowerRating) and
(
QQQQ |
Quote |
Chart |
News |
PowerRating). The XLE had an initial trend up into the highs at 1:30 p.m. at
45.14, then it was knife down to the 43.33 close. Any meaningful retracement
in
the energies will be bought by the herd, especially into quarter-end.

The SPY, just as the DIA, is back to its
20-day
EMA of 120.87, having closed at 120.97. The QQQQ remains nowhere at 37.57,
still
in that trading range since 01/20 with the two high closes being 38.12 and
38.06.

All of the ingredients are in place for more
volatility with a big expiration next week and the quarter’s end at the end
of
the month. Traders will have many opportunities both ways.

Have a good trading day,

Kevin Haggerty

P.S. I will be
referring to some charts here:
www.thechartstore.com in the future.

                                                       
Crude Oil

                                 
Goldman Sachs Commodity Index ($GYX)                         
          

                                      
charts from StockCharts.com