Daytrader’s Gold
What Wednesday’s Market Action Tells You
It was a bit of a search and destroy yesterday
for the SPX
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PowerRating), as the previous day’s 1008.92 high was taken out,
then reversed to the downside, which then took out the previous day’s low of
998.73 before reversing to the upside and closing at 1002.21, -0.6% on the day.
The Dow
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was just green at 1748, or +0.06%. The
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volume was 1.56 billion, the volume ratio neutral at 49, and breadth also
neutral at -298.Â
In the sectors, the
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wire-to-wire, closing at +2.0%. The
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time the afternoon price push up failed, as opposed to Tuesday when the SMHs
went plus in the afternoon with a late move into the close from +0.6% to +1.7%
at 3:45 p.m. ET, closing at +1.5%. Yesterday the SMHs went from -0.7% at 12:00
p.m. to +2.0% at 3:30 p.m., then the agenda ended quickly, as the SMHs declined
into the close at just +0.8%. The
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the XBD, RTH and CYC were red wire-to-wire. Both the XBD and RTH are also
bumping up against their extended one-year volatility bands.
For Active Traders
On Tuesday, the SPX was plus or minus 1 or 2
points all day, while the TRIN traded most of the day between 1.21 and .95.
Yesterday, the SPX went from +2 at 10:30 a.m. to -9 at 12:00 p.m. down to -2 at
3:30 p.m. and then -6 into the 4:00 close. The TRIN spent the day between .95
and .70. This subtle difference was due to the increased volume in fewer stocks
which did finish positive, such as
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PowerRating), +0.4%, all on more than double their average volume. That’s just to
name a few of the stocks. When looking at my index screens, you certainly want
to see volume increasing across many stocks/sectors, not narrowing.Â
There were some good trading setups yesterday for
daytraders, especially if you have learned about the RST and the tools used in
conjunction with the patterns. The initial trade was an SPX Trap Door above
1005.09, which is the high of the 9:45 a.m. signal bar. This trade only ran to
1010.43, which was a 1010 high on the E-mini and also at the E-mini 3.0 two-day
five-minute standard deviation band. This set up the RST sell pattern, with
entry below 1009.52 on the SPX, which equated to 1008.50 on the E-minis and
101.26 on the SPY. It also reversed the previous day’s 1008.92 intraday
high.Â
The SPX 1010.43 intraday high was the 1.272 Fib
extension of the 1008.92 3:45 p.m. SPX high on Tuesday to the 1003.85 9:45 a.m.
signal bar low yesterday. This trade ran down to an intraday low of 998.17 on
the SPX, 996 on the E-mini and 100.05 for the
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PowerRating). The RST sell setup
entry was preceded by a negative divergence in the Chande 20-period Momentum
Oscillator, and if you don’t have that, you saw it on a regular 20-period
momentum indicator. I prefer the Chande for several reasons, but that’s for
another day.Â
There was an RST buy pattern setup soon after the
998.17 low took out Tuesday’s 998.73 low and reversed that low to the upside.
Entry was, at worst, above 1000.40 on the SPX. The RST 3 point was the 998.73
low on Tuesday. This was a larger RST symmetry pattern. The trade ran to an SPX
high of 1007.15 before closing at 1002.21.Â
I am happy to say that one of the seminar members
from the June 20 – 22 seminar sent me an e-mail yesterday outlining this trade
exactly how he did it, which was right on the money. That makes it all work for
me when I see that kind of success. The same information is available to all,
but not everyone has the emotional discipline to pull the trigger when they
should, and that’s the difference between traders and wannabes.
Today’s Plan
Starting out the day as I do this at 7:30 a.m., I
see the Dow futures are -43, Nasdaq -13 and S&Ps -5, so until proven
otherwise, you should be thinking Trap Doors on the downside as the first
potential trade this morning. Yesterday’s rally from the intraday low was at the
1.0 volatility band, which was 998.43. Today’s 1.0 volatility band is 993.26,
the 1.28 is 990.75, the 1.5 band is 988.78, and the 2.0 volatility band is
984.31.
The 1.0 volatility band is always a good pivot
either way. If you get a buy setup, you generally take it, but then on a
reversal to the downside, you get on the short side because when the SPX closes
the day below the 1.0 volatility band for the first time after an uptrend like
now from 962.10 to yesterday’s 1010.43 high, it will most often trade lower over
the next few days at the least. By taking the intraday entry, and the SPX
continues to sell off to the lower bands, you can end up with a very profitable
index position that you can carry over, which is considerably better than
selling into the close just because it’s below the 1.0 volatility band, when in
fact, it might be closer to the 2.0 volatility band.Â
Should the SPX make a fifth leg run up above
1015.33 rather than a 1,2,3 lower or double top, the next higher confluence
would be in the zone that has 1020.72, which is the .618 retracement to 1177,
1024 which is a natural square number for you square of nine advocates, and
1025.37, which is the 1.618 Fib extension of the last primary leg down, which
was from 935.05 to 788.90.Â
FYI: Significant pre-market futures movement
which enables the specialists and market makers to game the openings is
“daytrader’s gold.”
Have a good trading day.
Kevin Haggerty
