Do Your Homework, And Get Trades Like These
What Tuesday’s
Action Tells You
The hype wasn’t enough to carry the major indices
yesterday, and in fact the SPX had one of its most narrow range days of the year
yesterday at 6.07 points. The intraday high was 1048.57 and low of 1042.50.
That’s not what a futures trader wants to see and why it’s beneficial to also
include individual stocks in your overall trading plan. The Fib extension
mentioned in yesterday’s commentary at 1053.87 has held for nine days now, which
means it has some coiled power if “they” try to run them a little into
month-end.
NYSE volume increased to 1.4 billion, but the
volume ratio was neutral again at 54, breadth the same at just 395, which
indicates the cross-currents had no defined direction. The SPX closed at
1046.03, +1.3 points on the day, while the Dow 9748, was -0.3%, Nasdaq 1941,
+0.8% and QQQ 35.26, +0.6%. The SMHs ended at +2%, closing at 40.20, led by TXN,
+6.3%,on volume of 33.9 million shares vs. a 10.9 million average, as the herd
mentality prevailed on announced news. In spite of TXN, the SMHs only opened at
39.55 vs. a previous close of 39.25. In fact, INTC finished slightly red
yesterday, and the SMH volume of 11 million shares was just below its average of
11.6 million shares. To support that observation, KLAC was +1.4% on 6.2 million
shares vs. 8.6 million average, and AMAT +1.2% on 19.7 million shares vs. a 29.4
average. The TXN news did not create another rush into the other semis
yesterday. Volume in the index proxies was also below average.
I am never crazy about the market action when the leaders for the day are the
BBHs +2.9%, OIH +1.9%, and PPH, +1.2%, all on above-average volume. The
primary thread in the stock screens after yesterday’s trading was the big-cap
biotechs like AMGN, +3.1%, on more than double its average volume, with IDPH,
+2.8%, GILD, +2.8%, CHIR +2.2%, all on less than average volume, in addition to
GENZ, +2% on 21% more than its average volume. The BBHs were oversold going into
yesterday and some hedge funds covered stock they had sold short after a
.618 retracement to the 140.42 high of 9/18. The BBHs had sold off from 135.50
to 126 the previous four days, picking up significant volume on recrossing the
50-day EMA of 31.88 to the downside on Monday (check your daily charts).
Yesterday the BBH recrossed the 89-day EMA again as it did when the .618
retracement move ran to 135.50. The 89-day EMA is now 128.55 with a double
bottom below at 126 which is below all of the 8, 20 50, and 89-day EMAs. The
200-day EMA is down at 118.24 and a and a AB=CD move measures down to 121.08.
The BBH closed at 130.60, just below the 131.88 50-day EMA.
For Active Traders
You now have the framework information to make some good trading decisions as
you follow the price action. You will, of course, do you work on the other
biotechs mentioned. When you look at AMGN, you see that the double average
volume and +3.1% move came from a recross of the 200-day EMA to the upside. The
BBHs and related big cap stocks are again a focus on your daily list. Do the
work, and you will catch the trades.
When the major indices get choppy or are
adjusting to new levels, it never hurts to increase your time frames for more
defined patterns. You should always be checking your daily charts for the best
intraday setups, but I mean moving to the 60-minute and 120-minute time periods
for intraday setups which can sometimes be carried over if you take short-term
position trades.
I have included charts in today’s commentary of
DOW and QLGC, which are examples of what I mean. Going into yesterday, DOW had
already made a .50 retracement (34.85) to its bull market 46.69 high. The .618
retracement zone is 37.50 – 38. Looking at the 60-minute chart, you see that a
defined ascending triangle had formed with the two previous days to yesterday’s
breakout having increased volume (1), higher lows and narrowing range, all
indications that a breakout was a possibility. Having observed that, the stock
would have qualified for your trading plan and you were ready to act yesterday.
There was a trade-through entry above 35.63, and DOW traded up to 36.06. The
point is, this could have been one of many different stocks with a defined
60-minute pattern going into yesterday’s trading. They’re out there every day,
but you have to do your work.
QLGC is another example. The stock had stuck its
head out of the inverse head and shoulders pattern on the daily chart on decent
volume (1), but there has been no follow through yet, but it did close yesterday
54.21, +1.7%, but on 25% below its average volume. We know the semis (SMH) made
new highs, but are obviously extended When you look at the QLGC 60-minute chart,
you get some real clarity on a possible trade
After thrust comes consolidation, which it has
done for the last six 60-minute bars where all of the highs and lows are within
the initial wide-range bar thrust with the 54.44 high. The inverse head and
shoulders on the daily chart measures to the 65-66 level and the .236
retracement to the parabolic bull market high of 203.25 is 61.11, so if
they push the semis into month-end, there is some upside room, or as a daytrader,
you might even play it out the bottom on the short side.
For Today
Based on the pre-market futures, with the Dow
-65, SPX -6.30, and Nasdaq futures -12.50, today’s early game is clearly Trap
Doors and Volatility Bands. Needless to say, this corner’s quick SPX index put
trade over the weekend with the initial stop above 1053.87, the 1.272 Fib
extension has worked out well, and now there is a tight trailing stop following
the early decline in the major indices.
Have a good trading day,
Kevin Haggerty
