Divergences

August 15, 2001
Kevin Haggerty

The
momentum of the early gap up was lost by
10:15 a.m. on the
(
NDX |
Quote |
Chart |
News |
PowerRating), which was preceded by the 9:55 bar downturn for the
(
SPX |
Quote |
Chart |
News |
PowerRating). It was trend down for both indexes into the close. There were two
brief rallies at extension and Fib retracement levels, both of which ended with
continuation short opportunities as the trend continued down.

The NYSE volume at 958
million was well below average; a volume ratio of 52 and breadth of +677. This
was considerably better than the Nasdaq. The SPX ended -0.4%, and the Dow -0.3%.
The Nasdaq traded less than 70% of its average volume, had a volume ratio of
just 35 and breadth was slightly negative at -48. The NDX finished -1.4%, and
the Nasdaq -0.9%.

Even when the indexes
work higher, the underlying institutional selling persists as evidenced by the
volume ratio negative divergences, which is also seen with the high average TRIN
readings. Translated, it means the selling pressure continues to be stronger
than the buying pressure. That is for the benefit for some of those on the
TradersWire that “understand” half of what I write.

Last night,
(
AMAT |
Quote |
Chart |
News |
PowerRating)
and
(
BEAS |
Quote |
Chart |
News |
PowerRating) didn’t hit you with a hammer in their announcements, and so far
this morning, both stocks are green in the pre-market trading. The NDX rallied
into option expiration from 1576 to 1672 yesterday for a gain so far of +6.1%.
The historical bias is up through Thursday and then down or flat on Friday as
the program traders have completed most of their games. Friday coincides with a
minor-cycle date and looks to be a minor-cycle high this week. There is a
stronger cycle that will unfold into the Aug. 22-24 time frame and will probably
be a minor low unless there is an inversion and this minor rally continues into
next week. Based on the volume ratios, that appears doubtful unless the Generals
show up in size.

The key cycle falls in
late September, with four different time cycles hitting at the same time. If the
Aug. 22-24 proves to be a minor low, then a rally into month-end and early
September could carry through before selling off into a major late September or
early October low. Cycles are just alert zones similar to Fib retracements and
major moving averages that you should always be aware of as you watch the action
approaching these alert zones and look for Change in Direction patterns that you
can capitalize on. They are not absolutes.

(September
Futures)

Fair Value

Buy

Sell

3.10

Â
4.15Â Â

Â 2.05

Stocks
Today

Have a good trading day.

Five-minute chart of
Tuesday’s S&P 500 with 8-, 20-,
60- and 260-period
EMAs

Five-minute chart of
Tuesday’s NYSE TICKS

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Divergences

BUY THE FEAR, SELL THE GREED

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