Confluence Zone
The
SPX
(
$SPX.X |
Quote |
Chart |
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PowerRating) traded down from the opening to
an intraday low of 857.39, right to the top of the first confluence zone
mentioned in yesterday’s
commentary as 855 – 845. The break below 875 and then 870 was below the
neckline of a larger head-and-shoulder with the left shoulder top on Aug. 9, the
head Aug. 22, and right shoulder on Sept. 11. The initial
head-and-shoulder-pattern top had broken below the 930 neckline and reached its
895 price objective before a rally to 924, the .618 retracement to 965. This
larger head-and-shoulder measures down to about 795.
I said there was 855 –
845 confluence, and there is also two 841 Square of Nine numbers. Squares,
Cardinals and Corners are usually helpful as confirming numbers to some reversal
pattern at key levels. To see the larger head-and-shoulder, check a 60-day
120-minute chart. Draw a trendline from 965 through 924, and then draw a
parallel line from the 870 .50 low. You will see that it takes you down to the
845 – 840 zone.
The .618 retracement to
776 from 965 is 848. There is some symmetry in progress now where leg AB, which
is 965 – 870, would equal leg CD starting at 924 and reaching 829, which is also
the .50 retracement to the 1982 low, in addition to being an extended standard
deviation band. This means I will look closely for intraday reversal patterns in
the 830 – 850 zone and keep the position if the trade is positive at the close
on the day of entry.
The trade would be better
in the index proxies and/or the
(
SMH |
Quote |
Chart |
News |
PowerRating)s. The semis have been the worst
performing major sector over the last two months, and a 10% SPX rally would
probably be 20% for the SMHs as the shorts scramble, if there are even that many
left as most of the group are now teenagers.
The major indices each
lost less than 0.5%, while NYSE volume increased with Triple Witch program
action to 1.5 billion, 10% above average, a volume ratio of 32, and breadth
-682. If you just trade individual stocks and not the index proxies or futures
along with some HOLDRs, then the frustration level is high, so don’t press the
action. Let it come to you with clearly defined entries. Reduce your trade size
to adjust to the volatility.
I am doing this
commentary Wednesday night for Thursday morning, so there are no pre-opening
futures to observe. But I can see the red in Wednesday’s late Island after-hours
trading from the EDS/IBM fallout. Maybe you might get a shot tomorrow morning
and get a good contra move.
Have a good trading day.
Five-minute chart of
Wednesday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Wednesday’s NYSE TICKS