Back To Go In Five Days

• February 19, 2002
• Kevin Haggerty

Friday
was a downtrend from open to close, as
both the SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) and DJX
(
$DJX.X |
Quote |
Chart |
News |
PowerRating) joined the NDX
(
$NDX.X |
Quote |
Chart |
News |
PowerRating) in breaking the 60-minute-chart uptrend. FYI: In response to
e-mails requesting setup info on the 60-minute chart, it is as follows: Use
either open high/low close bars or candles, it doesn’t make any difference.
There is an eight-period SMA of the high and an eight-period SMA of the low.
There is a five-period EMA of the last, in addition to a 20-period EMA of the
last. The stochastic is an 8,3,3 slow, or you can use a 14-period RSI if you
prefer. For the DMI, I prefer the eight-period ADX on five-minute charts.

The
(
QQQ |
Quote |
Chart |
News |
PowerRating)s had
rallied from the 35-35.25 .50 retracement zone of the September low to 37.57 in
five days. The .38 retracement level of 37.11 and 21-day EMA at 37.35 put the
brakes on the move. Remember, you can use these zones both down and up. On
Friday, the QQQs sold down to a 35.64 intraday low, closing at 35.78.

NYSE volume was 1.35
billion, and a volume ratio of 34, with breadth just about unchanged. The NDX
ended -2.6%, the Dow -1.0%, and the SPX -1.1%. The SOX
(
$SOX.X |
Quote |
Chart |
News |
PowerRating) was down
1.8%, while the brokers were down -4.0%. The networkers again got whacked, as
did health care. The VIX, after a reversal day on Thursday which you read in
the text, in addition to the Market
Bias Indicators, rose to 24.09. 

I hope you all played
some shortside in the index proxies, along with the
(
SMH |
Quote |
Chart |
News |
PowerRating)s and
(
SWH |
Quote |
Chart |
News |
PowerRating)s.
There was a nice gift coming off the short-term overbought. Position decisions
for your long-term money will become more difficult if the indices fell down to
their .618 retracement zones to the September low. Do you have a strategy in
mind? If not, get one, hopefully option related, if you have that education. Not
to be tried without one. 

If the QQQs drop to the
33.33 .618 retracement zone, or even lower to the .786 level, most of you won’t
have a strategy because fear will have taken over your emotions. Everyone has a
different risk/reward outlook, but there must be a plan of attack on how to play
the retracement, or else new lows. The only thing we look for in retracements is
possible reversal patterns. If we don’t get them, we don’t get them. You don’t
just trade the number.

The trend on the
60-minute chart is down for all the indices, so trade accordingly. And look for
reversal bounces at the inflection points on the way down. As I don’t have
access to proprietary screens, I’ll review the stocks tomorrow.

Have a good trading day.

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

Five-minute chart of
Friday’s NYSE TICKS