Anticipate The Extended Zone And Take The RST Or 1,2,3 Entries
What Wednesday’s Action Tells
You
After three days down from the 06/30
quarter-ending marked-up high, the major indices had a minor up reflex day,
with
the SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) +0.2%, closing at 1118.32. The Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) at
10,238 and
(
QQQ |
Quote |
Chart |
News |
PowerRating) at 36.12, were also +0.2%. The Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating)
was
+0.1% at 1966.
Coming into yesterday’s trading, the 4 MAs of
the
volume ratio and breadth were not short-term oversold, but price was
extended in
different timeframes relative to the standard deviation channel bands in,
for
example, the 20 — 30-minute, 30 — 30-minute and one-month time periods.
This
divergence between the volume ratio, breadth and price is only seen in very
skittish markets when buyers just walk away as price falls, and also after
mark-ups at quarter’s end like you just experienced. This kind of divergence
is
usually quickly met with some decision volume by the Generals, and the three
will get back in sync.
In the sectors, the SOX led at +1.1%, with
the
(
SMH |
Quote |
Chart |
News |
PowerRating) +0.8%. The one-month -2.0 standard deviation band was 34.50, and
it
was also the three-month -1.0 band. Yesterday’s SMH low was 34.55 on the
first
bar, as price eventually hit 35.19 before closing at 34.87. The XLB (basic
industry SPDR) was +1.2%, and the CYC +0.6%, as they both continued to act
better than the major indices, and this is often the case in the last part
of a
bull market.
On the red side yesterday was the XBD
(brokers)
-2.0% and is -4.9% for the past four days. The SMHs were -8.9% for the
three-day
drop from the 06/30 high of 37.90, which was also the retracement to the
200-day
EMA. Bonds were flat yesterday, but the XAU popped +4.0%. The current market
action is very difficult for almost all but “Sequence Traders” who
can operate
in any type of environment because of the core framework it is predicated on
(presented in the
“Trading Generals IV” seminar).
NYSE volume was 1.32 billion yesterday, with
the
volume ratio at 60, and breadth +843. The 5 RSI was 29 vs. 23 the previous
day.
The market action is negative when the semis and brokers have made new lows
to
the downside and trading below their 200-day EMAs which have flattened out.
They
have been leaders, not followers. I have included daily charts of both to
highlight the new lows. All of you sequence traders should now have your
anticipated price action zones where there can be a decent reflex, probably
in
conjunction with a short-term oversold condition for the SPX.
The XBD chart shows the .382 and .50
retracement
levels for both the October 2002 low and March retracement low. For the SMH,
it
would be the 33 lower channel line and 33.28, the 1.272 Fib extension of the
leg
up from 34.50 – 38.98. The next significant confluence is the .50
retracement to
the October 2002 17.32 low at 31.55 and the 31.73 1.618 Fib extension of
that
same leg up. These are your initial price zones where you might get
involved.
The upside retracement resistance is obvious on the charts. Check your XLB
daily
chart and you will see that price is above the lines, with the 20 EMA >
50 EMA >
89-day EMA > 200-day EMA.
The basics and some cyclicals are clearly
outperforming, which is consistent with the late stages of a move. This is
coupled with the current rise in different interest rates. For a fifth leg
to
happen, rather than just a 1,2,3 lower top for the SPX and Dow, the semis
and
brokers must turn around.
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25.5pt’>Friday | 25.5pt’>Tuesday | 12.0pt’>Â | 12.0pt’>Â | 22’>Â | 22’>Â | 9.0pt’>1129.18 | 9.0pt’>1125.38 |
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