Negative Divergence Catalyst

August 22, 2000
Kevin Haggerty

The
market numbers summed up the day, as
the Generals were very light yesterday. Total volume was only 732 million. The
volume ratio was a push at 52 and decliners led advancers by -147. Institutional
blocks dropped off to just 15,107.

The S&P 500 is still
bumping up against the upper boundary of the symmetrical triangle formed on the
weekly chart at about 1500, and as you saw with the Diamonds (DIAs) at the 105
3/4 – 106 level, the move out will be very tradable from both a position and
daytrading standpoint.Â Yesterday,
the morning trend was up as the S&P 500 hit its high of 1502.84 just before
11:30 a.m.Â

As you can see on the chart
below, there was a negative divergence by the NYSE Ticks. The
index gave you a 1-2-3 sell signal, trading below 1500 and also the 20-period
EMA, while the negative divergence in NYSE Ticks was a
catalyst for you to have taken the trade, either in the Spiders (SPYs) or a
related market stock with a similar pattern.

The trend was down until
about 3:00 p.m., when the index formed a double bottom just after 3:00 p.m. The
intraday low was 1491.50, just above Friday’s low of 1489. As
you will see on the chart below, the index rallied back above the 260-period EMA
and above all three EMAs, to close at 1499.50. The
rally was preceded by a positive divergence in NYSE Ticks.
No one was about to go out short in front
of the FOMC meeting.

I hope you are saving these
charts every day, because you will be writing the best trading book you haven’t
read yet, if you follow my meaning. You will start to acquire a very good market
feel for the various daily trends, and be able to recognize the trends with the
highest probability for a successful trade.

Today, of course, is the
much-heralded FOMC meeting, and judged by the recent rally, there aren’t any
negatives expected. If it is as
expected, the overreaction could be enough to break the S&P 500 out of the
triangle, and also get market makers and specialists profitably out of any long
positions they maintain coming into today.Â

It will also give them
opportunity to get some good shorts off. Don’t you be the ones they short stock
to!

face=”arial, helvetica”>(September Futures)
Fair Value	size=2>Buy	size=2>Sell
6.20	7.40	5.10

Pattern
Setups

And again, you are looking for
trade-through entries either first or second.

Have a great trading day.

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Negative Divergence Catalyst

BUY THE FEAR, SELL THE GREED

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