A Good Risk/Reward Setup
Yesterday was rising prices for the major indices,
but a drop off in the volume ratio to 68,
and breadth to +687. NYSE volume was the same at 1.6 billion. The SPX
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$SPX.X |
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PowerRating),
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PowerRating) all finished at +0.8%, while
the
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SMH |
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PowerRating)s were +0.5%. In the sectors, the BTK was +3.4%, as that sector has
performed well for us since the breakout. The XBD ended at +1.4%. Both the QQQ
and SMH closed at 27.65, with intraday highs of 27.75 and 27.78, so the 28 upper
regression channel boundary is certainly in play.
Yesterday was the eighth
day up in the current move after the last pullback for the SPY, QQQ and SMH, in
addition to a volume ratio that now has a four-day average of 74, so that is
good reason to be alert for any quick reflex down. The short and intermediate
trends continue to be up, as are the intraday trends defined by the 820 trend
method some of you have learned from the seminars.
The SPX traded up against
the 12-month EMA zone yesterday, closing at 919.02. The .786 retracement to
954.28 from 788.90 is also 919. The head-and-shoulder neckline above is about
925, which coincides with the .50 retracement to the 1990 low from 1553, which
is 924. AIV, which is the average implied volatility, for the SPX has averaged
below 20 for the past four days. The 52-week low for AIV is about 16, so more of
the synthetic straddles were initiated yesterday in conjunction with these
current key levels for the SPX.
The Dow closed at
8515.66, yet to take out the 8522 magnet on a closing basis. If it trades above
yesterday’s 8526.31 high, then reverses back below it, an intraday 1,2,3 higher
top sets up. It is a good risk/reward kind of trade because the indices are
short-term extended and your stop is right above 8526.31. Any overbought reflex
down vs. a tight stop is good risk/reward.
Have a good trading day.
Five-minute chart of
Wednesday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Wednesday’s NYSE TICKS