A Ladder To Watch

May 1, 2002
Kevin Haggerty

Yesterday
we had the last day of the month with
an expected reflex up. The volume was greater than I expected, as you most often
see it preceding the last day of the month. The NYSE volume was 1.5 billion,
which is about 20% greater than average, the volume ratio was 76, and breadth
very positive at +1280.

The SPX closed at
1076.92, above the midpoint, but not above the previous day’s high of 1078.95.
Yesterday’s SPX high was 1082.62 and becomes today’s second breakout level, the
first being Monday’s high at 1078.95. The SPX is in an RST pattern that
activates above the high of the low day, and you only keep a position if it
closes above that high. The
filters are not at full speed, but because of the oversold condition, you can
take the pattern entry.

Expecting the reflex to
continue for a few days, I have laid out the upside framework to be ready for
intraday setups and resistance at the key levels. For example, 1089 is the .38
retracement between the 945 low and the rally high of 1177. It is also a Corner
Number (for those of you that are into the Square of Nine), and it is also a
natural square number, by that I mean 33 x 33 = 1089. You’d be surprised how
often these numbers come into play. The 20-day EMA is 1102, and 1106 is a
Cardinal Number, which is again another Square of Nine reference. And 1106 is
also the .38 retracement to the last swing point high of 1174. Above that is the
50-day EMA at 1118, and the .50 retracement at 1119. The 20-day SMA is 1128,
with the .618 at 1132. And then up above, you have the 200-day EMA at 1146.
You’ve got a ladder to watch on the way up. Believe me, it helps.

You now have a frame of
reference for when and if the SPX trades into these levels, and you can watch
for intraday patterns that might develop at the levels, which makes you better
prepared to trade. If you don’t do it, you more than likely just trade
emotionally and respond to program moves or media hype, both of which are
loser’s games.

I’ve commented on the
overall market enough recently. You know where I stand on further decline/retest
after any reflex rally. For me, it’s just a question of what short vehicle to
use on any retracement to resistance, i.e., puts, bear spreads, bear funds like
Rydex, etc., or just the index or sector proxies. One thing it won’t be is short
naked stocks. Times have changed, folks, and so has the game, especially when
the market is trying to make a transition from bear to bull. The rallies are
sharp in a bear market, and naked stock shorts are simply the worst way to play
the game.

In the sectors, we had a
homerun with our defense stocks yesterday. Also, the
(
BBH |
Quote |
Chart |
News |
PowerRating)s were +4.0% from
an oversold condition. An RST has set up on yesterday’s outside bar with an
intraday high of 100.98. Reversal of the September low is when the BBHs trade
above 101.31. You seminar veterans must see Amgen
(
AMGN |
Quote |
Chart |
News |
PowerRating), which is the most
heavily weighted in the Biotech HOLDRs, is also in an RST setup. The
(
$SOX.X |
Quote |
Chart |
News |
PowerRating) ended +1.8%, but that was a decline from earlier strength. The
basics had a good day, along with the financials, so this should all mean some
more reflex up, very short-term.

Stocks
Today

Have a good trading day.

Five-minute chart of
Tuesday’s SPX with 8-, 20-,
60- and 260-period
EMAs

Five-minute chart of
Tuesday’s NYSE TICKS

A Ladder To Watch

BUY THE FEAR, SELL THE GREED

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