After A 21-Day Rally, Downside Is No Surprise

September 16, 2004
Kevin Haggerty

What Wednesday’s Action Tells
You

It was price down into the 10:30 a.m. ET
period
for the major indices and then the market action was very choppy for the
remainder of the session.

NYSE weekly average volume was 1.38 billion
on
08/06 and has not had a weekly average above 1.27 billion since then. This
is
not only a problem for the brokerage industry, but highlights the timid
participation by the Generals. This is a primary reason that the major
indices
can be moved so easily and why so many inane economic reports enable the
futures
to be gamed with little capital. Excuse me, whatever happened to 32,000
jobs?
We’d like to get that again just before another rally.

All of the primary sectors were red
yesterday,
except for the
(
OIH |
Quote |
Chart |
News |
PowerRating) at +0.5%. The SMH, -3.0%, and XBD (brokers), -1.3%,
led
the downside.

For Active
Traders

On the SPX chart, you see that price hit 1120
on
the 10:30 a.m. bar with the -1.0 volatility band at 1119.74. The Trap Door
entry
failed at 1122.25, then made a 1,2,3 lower bottom with the intraday low of
1119.74. Entry was above 1120, but this trade failed at 1123.90, which was
the
240 EMA level, and also the 1124 .618 retracement to 1163.23 from 1060.72.
The
-1.28 volatility band was 1119.50. Net net, there were defined setups with
little or no intraday result.

On the QQQ chart, you can see the weak
attempts
from the -1.0 and -1.28 volatility band levels, then the best of the weak
off
the -1.5 volatility band level with 35.12 also being the .50 retracement to
39
from 32.35.

The two Dow charts highlight your initial
short
side action with a 60-minute chart setup off the daily chart upper channel
downtrend zone. The Dow hit resistance at the 10,363 level (daily chart).
The
60-minute chart outlines the 1,2,3 double top with the triangle pattern
after
the second top at 10,348. The breakout below 10,300 put price below the 8
and 20
EMAs, and price traded down to a 10,229 intraday low, which is close to
minor
support at the 10,211 level, in addition to the 20-day EMA at 10,213. The
60-minute momentum oscillator is in the oversold zone below -50. These
two-way
zones are ideal for daytraders, as you can get a reflex off the minor
support
and/or continuation short action below the levels you see on the 60-minute
chart.

Today’s
Action

After the 21-day rally to some upper
resistance,
with more above at the SPX 1135 – 1141 zone, you will not be surprised with
more
downside after yesterday’s close below the lows of the past two days. Any
early
up back to the 1124.60 midpoint of Tuesday’s 1129.46 high and yesterday’s
1119.74 low could be a good intraday short level, as it is also the 1124 –
1125
resistance outlined in previous commentary.

Initial downside support for the QQQ is
34.95 –
34.65, and for the
(
SPY |
Quote |
Chart |
News |
PowerRating), it is 112 – 111.65.