A Course In Short-Term Market Dynamics
What Friday’s Action Tells You
The SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) closed the week at 1061.50,
+0.3%, but closed in the bottom 20% of the weekly range as that short-term overbought
condition going into Monday, Dec. 1, is worked off. The four-day MA of the volume
ratio is now 42, and the four-day MA of breadth went negative at -159 for the
first time since Nov. 21. (I hope you are saving all of your tables because
this table is a course in a short-term dynamics by itself.) The 1061.50 Friday
close is a new weekly high close for the SPX, with the high daily close having
been 1070.12 on Monday, Dec. 1, at the peak of the short-term overbought condition.
1058 – 1060 is the top of the trading range that the SPX broke out of on Dec.
1.
| size=2> |
Monday
12/1 |
Tuesday
12/2 |
Wednesday
12/3 |
Thursday
12/4 |
Friday
12/5 |
Net
|
| color=#0000ff>Index | ||||||
| color=#0000ff>SPX | ||||||
| color=#0000ff>High |
1070.47
|
1071.22
|
1074.30
|
1070.37
|
1068.41
|
1074.30
|
| color=#0000ff>Low |
1058.20
|
1065.22
|
1064.63
|
1063.16
|
1060.21
|
1058.20
|
| color=#0000ff>Close |
1070.12
|
1066.62
|
1064.73
|
1069.72
|
1061.50
|
1061.50
|
| color=#0000ff>% |
+1.1
|
-0.3
|
-0.2
|
+0.5
|
-0.8
|
+0.3
|
| color=#0000ff>Range |
12.3
|
6
|
9.7
|
7.2
|
6.9
|
16.1
|
| color=#0000ff>% Range |
97
|
23
|
0
|
91
|
19
|
20
|
| color=#0000ff>INDU |
9899
|
9854
|
9873
|
9931
|
9863
|
|
| color=#0000ff>% |
+1.2
|
-0.5
|
+0.2
|
+0.6
|
-0.7
|
+0.8
|
| color=#0000ff>Nasdaq |
1990
|
1980
|
1960
|
1969
|
1938
|
|
| color=#0000ff>% |
+1.5
|
-0.5
|
-1.00
|
+0.4
|
-1.6
|
-1.2
|
| color=#0000ff>QQQ |
35.90
|
35.69
|
35.26
|
35.63
|
35.05
|
|
| color=#0000ff>% |
+1.5
|
-0.6
|
-1.2
|
+1.1
|
-1.6
|
-0.8
|
| color=#0000ff>NYSE | ||||||
| color=#0000ff>T. VOL |
1.35
|
1.38
|
1.42
|
1.38
|
1.22
|
1.35
|
| color=#0000ff>U. VOL |
1.08
|
585
|
609
|
688
|
370
|
666
|
| color=#0000ff>D. VOL |
246
|
779
|
783
|
689
|
830
|
665
|
| color=#0000ff>VR |
81
|
43
|
44
|
50
|
31
|
|
| color=#0000ff>4 MA |
71
|
64
|
57
|
55
|
42
|
|
| color=#0000ff>5 RSI |
92
|
70
|
65
|
72
|
53
|
|
| color=#0000ff>ADV |
2417
|
1614
|
1518
|
1605
|
1437
|
1718
|
| color=#0000ff>DEC |
882
|
1634
|
1749
|
1641
|
1787
|
1539
|
| color=#0000ff>A-D |
+1535
|
-20
|
-231
|
-36
|
-350
|
+898
|
| color=#0000ff>4 MA |
+1115
|
+810
|
+481
|
+312
|
-159
|
|
| color=#0000ff>SECTORS | ||||||
| color=#0000ff>SMH |
+0.6
|
-0.7
|
-1.8
|
-0.6
|
-3.6
|
-6.1
|
| color=#0000ff>BKX |
+0.9
|
-0.1
|
-0.4
|
-.03
|
-0.9
|
-0.8
|
| color=#0000ff>XBD |
+1.2
|
-.08
|
+0.6
|
-0.9
|
-1.4
|
-1.3
|
| color=#0000ff>RTH |
+.06
|
-2.2
|
-0.8
|
-0.4
|
-0.9
|
-3.7
|
| color=#0000ff>CYC |
+1.8
|
-0.4
|
+0.4
|
-.05
|
-1.0
|
+0.3
|
| color=#0000ff>PPH |
+1.6
|
-0.2
|
+0.5
|
+0.2
|
-0.5
|
+1.6
|
| color=#0000ff>OIH |
+0.7
|
+1.2
|
-1.3
|
+3.4
|
+2.3
|
+6.3
|
| color=#0000ff>BBH |
+2.1
|
+0.5
|
-0.4
|
-0.3
|
-0.8
|
+1.1
|
| color=#0000ff>TLT |
-0.5
|
+0.4
|
-0.4
|
+0.2
|
+1.6
|
+1.3
|
| color=#0000ff>XAU |
+2.3
|
+.07
|
-.07
|
-2.6
|
+1.8
|
+1.5
|
The longer-term and intermediate trend conditions
certainly remain intact, with the SPX having closed above all of its rising
10-week 1042.94, 30-week 1006.52 and 40-week 995 EMAs. The 20-day EMA is 1055.08.
Regardless of which stochastic you use, you see the overbought condition working
itself down. If there is to be a good retracement entry, it will come from an
oversold condition in a rising trend.
Last week had more “best in 20 years
economic
data” according to the media than we’ve seen so far, and the market has
certainly discounted anything we have seen and then some. Friday was a tired
day
on very light volume at 1.22 billion shares and a daily range of less than 7
points. The
(
INTC |
Quote |
Chart |
News |
PowerRating) mid-year “whatever” and the jobs report,
which has an
error factor of +/- 150,000 was the media’s excuse, not the reality of price
working itself off. The fact is that since the March retracement to the
October
2002 low, the SPX has yet to have even a 6.0% close-to-close retracement and
has
had only two 3.0% closing retracements. That is certainly a persistent price
move, so until shown otherwise, that’s what is.
For Active
Traders
Having said that, there are some interesting
weekly chart trading ranges that have provided opportunities at the upper
and
lower boundaries, but that’s assuming you know how to trade them. The
current
examples are the five-week
(
SMH |
Quote |
Chart |
News |
PowerRating) trading range between 44.70 – 41. In
the
Nov. 7 commentary, I highlighted this zone which has four different Fib
extension levels: 44.85, 44.68, 44.29 and 44.19. Net net, this confluence
has
been the upper trading range boundary for the past five weeks and has also
had
the largest volume pattern since the October lows.
You can trade many different trading ranges
and
it is a good risk/reward because if you take a long intraday setup at the
bottom
of the trading range, you have a tight stop below the range and can always
reverse the trade to the short side (reverse for sells). If the intraday
trade
has a profit cushion, you might keep it for a short-term position trade to
the
upper/lower boundary of the trading range. INTC, which has the largest
weighting
of the SMHs, is in the same five-week trading range as is
(
MXIM |
Quote |
Chart |
News |
PowerRating),
(
TER |
Quote |
Chart |
News |
PowerRating),
(
NSM |
Quote |
Chart |
News |
PowerRating),
(
BRCM |
Quote |
Chart |
News |
PowerRating),
(
MCHP |
Quote |
Chart |
News |
PowerRating) and
(
TXN |
Quote |
Chart |
News |
PowerRating), the
second-largest
component of the SMHs.
(
KLAC |
Quote |
Chart |
News |
PowerRating) is a stock that has been coiling for a
move
for the past 16 weeks in an ascending triangle between 60 – 55, so keep
involved
in it every day when it sets up.
These types of weekly symmetrical trading
ranges
don’t happen that often, and you should be all over them on both an intraday
and
short-term position basis. Contracting volatility precedes explosive moves,
just
as volume precedes price on significant moves. When they both happen in
sync,
you are a big winner. You can get a good handle on which way the weekly
trading
range might be broken by the daily chart pattern, so stay all over them
because
there are many 1,2,3 higher, double and lower tops in progress, such as TXN,
(
AMD |
Quote |
Chart |
News |
PowerRating), NSM, BRCM,
(
LLTC |
Quote |
Chart |
News |
PowerRating) and INTC, just to name a few. Check their
daily charts to see for yourself.
There has been a significant pick-up in
volume
during this five-week SMH trading range, and there are obviously many
different
agendas going on with the institutions and hedge funds to keep this range so
narrow for the past five weeks. It won’t last much longer, so stay involved
on a
daily basis because there will be many opportunities both ways, especially
in
many of the individual semi stocks.
A weekly pattern that is ideal for range
trading
while waiting to put a position trade on with the breakout is the
(
SWH |
Quote |
Chart |
News |
PowerRating)s.
This HOLDR has been trading between 37 – 34 and just above all of its rising
10-, 30- and 40-week EMAs. This trading range has been going on for 14
weeks. It
closed the week at 35.80. The largest component is
(
MSFT |
Quote |
Chart |
News |
PowerRating), and that’s
why
I’m involved, but would go with the SWH on a longer-period position
trade
to have a better risk profile if they take the market up for another ride
into
year-end.
I have included the five- and 30-minute
charts of
the SPX for Friday. The five-minute chart depicts the gap-down opening and
then
the Opening Reversal strategy entry above 107.19. This ran to 107.42, which
was
the .618 retracement to the previous day’s 107.70 high, and it was also a
50%
gap pullback. TRIN had improved, but was still at 1.30 with all of the
sectors,
except the
(
OIH |
Quote |
Chart |
News |
PowerRating)s, red and breadth negative, so you had a trade
management
decision to make below 107.30, which is marked on the chart.
The
(
SPY |
Quote |
Chart |
News |
PowerRating) traded down to 107.04 after
that,
held the low and also the previous day’s 106.94 low, then rallied to 107.52
vs.
the .786 retracement of 107.55 (not shown on chart). This created an AB=CD
setup
with the 107 – 107.42 leg and the 107.04 – 107.52 leg. This measured to
107.46,
so there is a confluence with the .786 retracement of 107.55. This short was
taken even though the first one was a scratch trade as the stop had been
moved
to breakeven.
Looking at the 20-day 30-minute SPX chart
tells
you why you would have taken that second opportunity on the short side, as
you
see the rounded top/head-and-shoulder top setup with the negative divergence
of
the 14-period momentum indicator. There is some air below the neckline on
the
higher 20-day 30-minute timeframe, so a short entry with confluence on the
five-minute chart was a good do.
Today’s
Action
I am doing this Sunday for Monday because the
snow here has made one less than mobile, and I am hanging out on the
computer.
There is no current short-term oversold condition or retracement to an
inflection point yet, so Monday starts out with what I call a “show me
day.” The
SPY closed at 106.85, which is back into the top end of the trading range
since
the middle of October. The 20-day EMA is 106.07, with the 50-day EMA at
104.84.
Friday was only the second retracement day down from the eight-day
retracement
rally off the 50-day EMA which started Nov. 21, getting a head start into
the
Thanksgiving week. Time to go. We put up the Christmas tree today, and
because
of the snow, we’ll start to put a few things on it…that is if the ACLU
doesn’t
try to take me to the Ninth Circuit Court in San Francisco. Some
chance.
Have a good trading day,
Kevin Haggerty
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