Again
It
was, of course, another down day at the office. The
scorecard read Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating) -4.2%, SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) -2.7%, while
the Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) declined only 1.1%, in spite of Citigroup
(
C |
Quote |
Chart |
News |
PowerRating) at -15.7%
and JP Morgan
(
JPM |
Quote |
Chart |
News |
PowerRating) at -18.1%. The NYSE volume has averaged 78% above its
average for the past three days, and the SPX even higher than that due to
programs, as it has declined 14% high-to-low over the past five days.
It was a choppy trading
day for the indices/HOLDRs as I look at the world with only one defined
opportunity that resulted in more than a plus or minus scalp. The triangle
breakout to the downside below all of the 8, 20, 60 and 260 EMAs on your
five-minute chart was good for a 15 point down move in the SPX, -157 points on
the Dow, and 1 point on the SMHs. I was pleased to see some of the e-mails
telling me you took the trade. It was a straight down move without any head
fakes to the upside.
In the sectors, the
financials, of course, were a big negative due to the ongoing saga of Enron,
etc., and whether another shoe will drop. The
(
$SOX.X |
Quote |
Chart |
News |
PowerRating) declined 4.9%, and
the
(
SMH |
Quote |
Chart |
News |
PowerRating)s made a new low close at 27.20, but not a new low below 27.05. An
RST starts to set up below 27.05 and also a potential 1,2,3 lower bottom or
shake and bake as some of you know it.
It’s redundant to mention
the extreme oversold condition, including the long-term bands, but you must be
aware of all the Dow confluence from 7400 – 7500. The Dow closed at 7702, which
is right at the bottom of a good confluence from 7700 – 7750. That’s where we
had that 300 point reversal the other day. For those of you into the longer-term
Bollinger Bands, 7500 is approximately the low band.
Whether we get a good
reflex, which we will, and then trade down to a low, or whether the freefall
continues and the bottom comes early, we can’t know. What we can do from a
trading standpoint is to take the intraday long trade on the indices/HOLDRs,
when given, and keep it if profitable at day’s end. We also, obviously, will
continue to take any continuation shorts. Stay away from individual stocks for
position.
For example, in 1987,
whether you call it the crash or the bear market, the SPX hit a 337 high on 8/27
and was down 9.4% to 305 on 10/14 on no unusual volume. It fell 2.3% to 298 on
10/15 as volume went from 2 million to 2.6 million, or +25% above average.
Certainly not unusual. On 10/16, it closed at 283, -5.0%, on 3.4 million shares,
which was about 80% above average.
The next day is history
— 10/19. The SPX fell 20.5% to close at 225 on 6 million shares. On 10/20, the
SPX gained 5.3% on 6.1 million shares. On 10/21, it gained 9.1% on 4.5 million
shares, and on Monday, 10/26, it fell 8.3% to 228 on 3 million shares. Over the
next four days into 10/30 it rose +10.6% on a volume average of about 2.8
million. Net loss from the 10/19 crash date at month end was -7.7%.
The point of giving you a
little history is to point out that after all that crash, the bottom wasn’t to
come until 12/3 at 223.92 and certainly not on unusual volume. From the 10/19
low to the November high of 256, the SPX gained 14% before trading back down to
the final low — 223.92 on 12/3 — which was -12.5% from the November high. All
told, from 337 to the actual 223.92 low was -33%. I suggest you go to Yahoo! and
review the 1998, ’94, ’90, ’87 and ’82 bear markets regarding price and volume.
You will see they are all different, and you will no longer be hung up on that
word capitulation.
From my perspective, I
like what I see here on 7/24 with futures early red. My next trigger is the 775
– 725 levels on the SPX for a longer-term ticket, but will be happy with any
good reflex. When you get this price persistence, the specialists and market
makers are lugging inventory in the red, so on any chance to turn it back up
fast, they will, with the shorts right along with them, and also the programs.
It will happen quickly when it does.
Friday’s my last day. I
will be on vacation through August 8. Keep your helmets on and have a good
trading day, and play any long reversals you get today, especially today.
Five-minute chart of
Tuesday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Tuesday’s NYSE TICKS