95% Of You Will Lose Money By Scalping If You Fall Into This Trap

August 5, 2004
Kevin Haggerty

What Wednesday’s Action Tells
You

The reaction to better numbers, like the June
Factory +0.5% and ISM increase, go mute, as they have been to the “less
than”
type of reports. When the Generals are not very active, program activity
will
stand out as it has been recently. The brokers on the NYSE floor get active
in
the first hour, then the real activity goes quiet, followed by some
afternoon
program activity. This makes it tough for traders as the opportunities are
obviously reduced due to the lack of real travel range and follow through.
Don’t
let this current scenario force you to get very active in scalping, which is
a
losing game for 95% of you.

NYSE volume was 1.37 billion with the volume
ratio at 43 and breadth a non-defining -73. The 4 MA of the VR is absolutely
neutral at 49, with the 4 MA of advances minus declines at +71. There is
nothing
to take from either of these numbers until there is a move in either
direction
to change the mix.

Until the 1:35 p.m. – 2:45 p.m. ET major
index
upside burst, the up volume – down volume ratio was running between 4:1 –
5:1
negative. Fifty percent of that program-induced move was given back into the
close, i.e., the
(
DIA |
Quote |
Chart |
News |
PowerRating)s traded from 101.10 – 101.84 and in the last 75
minutes traded down to a 101.40 close. News-induced reactions continue to
get
shorter and shorter, so traders have to manage trades better and be sure to
take
profits on a percentage of your position into these moves. You should then
move
your stops to breakeven and above if price continues in the direction of
your
trade.

For Active
Traders

Yesterday’s action in the
(
SPY |
Quote |
Chart |
News |
PowerRating)/ESU4 was
so
choppy that an RST formed with all points in the first 90 minutes, which is
very
unusual. The SPX 1092.91 low on the 10:15 a.m. bar was almost to the -1.0
volatility band of 1091.97. This rally went to 1097.47, re-crossing the
1094.76
200-day EMA, but then reversed and made a new 1092.40 intraday low on the
11:00
a.m. bar, and this was the RST signal bar. The problem is that after entry
above
1093.80, price ranged between 1095.45 – 1093 until the upside breakout on
the
1:35 p.m. bar. This sideways action was too long after initial entry, so you
got
timed out. The pattern was still in force, and you made a decision to either
play the range breakout or not. (This corner did not, but played the RST
sell
pattern below the 1101.97 low of the 2:50 p.m. bar.)

Today’s
Action

Friday is the jobs data dance that we get
once a
month, so I don’t know how much travel range the major indices will give us
today, but you must at least be aware of the levels in play to watch the
price
action. The futures are essentially flat at 7:30 a.m. ET.

The SPY closed at 110.20 with the 240 EMA at
110.36, below are the 40-week and 200-day EMAs at 110.05 and 109.90, then
you
have the 12-month and 233-day EMAs at 109.27 and 109.20.

For the DIA, which closed at 101.40, right at
the
101.42 240 EMA, the same numbers as the SPY, in order, are 101.20 and
101.09,
then it’s down at 100.56 and 100.51.

The QQQ closed at 34.24 with the 240 EMA
starting
the day at 34.44, but there are four longer-term numbers from 34.70 to 35.18
which stopped the four-day rally at 35.10 on 07/30.

Incorporate today’s volatility bands, in
addition
to the retracement levels to yesterday’s intraday lows, and you are ready to
deal with today’s market action. Remember, in addition to all that is going
on,
it is August, so don’t force it.

Have a good trading day,

Kevin Haggerty

95% Of You Will Lose Money By Scalping If You Fall Into This Trap

BUY THE FEAR, SELL THE GREED

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