Continuation And Counter Trades
The
major indices took another hit
yesterday, as the Dow
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lost -1.1%, S&P 500
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-2.1%, Nasdaq
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and the NDX 100
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which is 40% above average; a volume ratio of just 11 as there was 1.6 billion
down volume. Breadth was very negative at -1653.
All sectors were red
for the entire session. The Semis had the same day as Monday with another -5.1%
day and Advanced Micro Devices
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made some negative news late yesterday and was trading down, so we may get lucky
with some gap down openings setting up some Trap Doors and Volatility Bands. The
SOX closed at 348.51 and its 2.0 standard deviation longer-term band is 345, and
the 3.0 band is 303. This is using a price average, not implied volatility, and
it changes daily.
The
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you two excellent trades yesterday, enabling you to catch the morning short
trend into the 1:15 PM bottom and the 12 point rally off the September lows.
Your first short entry was a Flip Top, with entry below 963.48 and it never
looked back. It declined 18 points to a 945.54 intraday low vs. the 944.75
September low and the 2.0 Volatility Band yesterday, which was 945.55.
The long entry pattern
was a 123 Lower Bottom, or “Shake and Bake,” as you seminar attendees know it,
with the first entry above 946.41 which was the previous low on the 12:10 PM bar
or for sure above 946.90, the high of the intraday low bar. This run was to a
958.73 high, topping out on the 2:30 PM bar, then closing at 948.09. You also
had an RST buy pattern for the S&P futures at this 2.0 Volatility Band level on
the SPX.
We had a continuation
trade in the direction of the trend with the Flip Top, then you had a reversal
or counter trade at a key inflection point with a defined entry pattern, both of
which are in the seminar manual and on the tapes.
Media anticipation is
high for a July 4 terrorist alert and the major indices are out to levels of
standard deviation that have provided excellent reflexes in previous extreme
oversold conditions. Maybe that means a stand off today. I don’t know or care,
but you must be able to react to both the long and short trends, as you did
yesterday.
The shorts are thinking a
bit about if nothing happens on the Fourth, then the major indices could get a
July reflex from these extreme levels. If any Generals show up today on the buy
side, that would force the shorts to react, especially if the program gang help
accelerate the tape to the upside.
Sequence Trading is
enhanced by volatility created by the program gang which is the dominating
factor in the markets right now. Programs as percentage of NYSE volume is
currently averaging close to 35% and we have seen a recent period where it was
over 40%. For traders, that means you must have fast feet and a finger on the
button. I once again suggest that you stay with the major index proxies and
HOLDRs, especially SMHs, to play in today’s game. When you trade the individual
stocks, scroll for only the most defined setups and forget any Nintendo trading.
Have a great holiday.
Five-minute chart of
yesterday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
yesterday’s NYSE TICKS