Do Your Work On The Price Zones And You’ll Be Rewarded
What Thursday’s Action Tells
You
There was lots of noise yesterday, but on the close
both the
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DIA |
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SPY |
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was in the semiconductors, as the
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SMH |
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OIH |
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RTH |
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CYC +0.2%. NYSE volume was 1.37 billion, with the volume ratio at 62 and 4 MA
neutral at 53. Breadth was +708.
The shorts in the semis got squeezed right from the
pre-market. They had been declining for the second time into the .618
retracement zone to the October 2002 17.32 low. The first time the rally was off
a 28.30 low and ran +9.5% to 31 in six days. This move comes off a 27.78 low on
Tuesday (.618 zone 28.19). There were overloved and oversold and in a key price
zone. There are some large institutions that like to run the shorts in from
these kinds of technical pockets.
The semis have been downgraded by the analysts
following each other down like sheep.
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INTC |
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downgrade and perceived negative comments by the company from 21.63 to 19.85.
The initial INTC downgrade started on 07/13 with a gap down from 26.14 to 23.25
in a day. The hedge funds have been riding the analysts down with a short bias
into strength.
The best moves almost always come from key price
zones, and yesterday’s semi squeeze was no exception.
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TXN |
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were our catalysts, along with the price zone in the semiconductor/SPX
divergence that I said would be resolved quickly (09/08 commentary). The
pre-market game started early as the SMH traded from Wednesday’s 28.04 close to
28.57, +1.9%, on only 19,400 shares by 8:41 a.m. ET.
It amazes me that the large institutions are crying
about pennies on the NYSE and are getting killed by artificial pre-market
trading in futures and stocks that force them to pay big opening premiums or
take large discounts. Let’s hope they remain fixed in their VWAP
(Volume-Weighted Average Price) trading to avoid making real trading decisions
and don’t wake up to the pre-market game because we, as traders, live large on
that artificial price movement that causes volatility to get extended. The other
important part of that game is the TV media and their artificial hype trying to
make something out of insignificance.
For Active Traders
The SMH opened in New York at 28.48, having traded up
to 28.57 in the pre-market. The 1.0 volatility band was 28.56. On the chart
below, you can see that it hit 28.74, +2.5%, on just the second bar. The 1.28 VB
was 28.71. The volume was 1.1 million on the first bar and 1.79 million on the
second. The third bar turned red on 3.04 million shares as price traded to the
opening level of 28.47. The first short was to fade the 1.28 VB and 480 EMA at
28.74. This was, at worst, a scratch trade as you took off some of the trade as
price declined -0.9% in your favor from the 480 EMA. The pullback trade was not
taken here because it didn’t fulfill the Gap Pullback requirements, in addition
to the fact that both the SPX and Dow were red as the SMHs danced alone. Breadth
and volume were just slightly positive at the time.
The second short was taken after the 28.90 (+3.1%)
reversal with the 1.5 VB at 28.82 and 2.0 VB at 29.09. You shorted below the
doji bar 28.80 low or reversal of the previous 28.74 high.
This trade was a good one as price traded down to
28.33 and the 50% gap pullback zone, in addition to the 240 EMA. Both of the
moves to 28.90 from 28.47 and to
28.33 were on light volume. The third and best trade came on this 50% gap
pullback which then reversed the previous day’s high and open of 28.48. This was
significant SMH action on this move as some real buying came in that took price
up to 29.68 (+5.8%) vs. the 3.0 VB at 29.61 with the 20-day EMA at 29.68. Price
faded to a 29.36 close.
The SMH volume yesterday was 39.9 million, the most
up volume ever, so that obviously means significant institutional participation
along with short covering. The catalyst was the jobless claims report, and on
this move, all of the major indices participated. You can see this on the SPX
chart where price rallied from the 480 EMA and 1114 .618 retracement level to
the 06/24 1146.34 swing point high from the recent 1060.72 low.
Today’s Action
Do your work on the price zones and related sequence
and you will be rewarded both long and short. The SPY chart is the current
picture as price enters the high end of resistance at about 113.75 – 114. The
semis are obviously the major focus again after yesterday’s action.
Have a great trading day and a safe
weekend,
Kevin Haggerty