Don’t Be A Hero Today On Breakouts
What Wednesday’s Action Tells You
Yesterday’s market action had some definition,
even though the SPX
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and 1022, a 7.3 range. NYSE volume expanded to 1.64 billion, as the SPX range
narrowed and closed at 1026.27, +0.4%. The Dow
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+0.5%, Nasdaq
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QQQ |
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due to the semiconductor decline, as the
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SMH |
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was 63 with a six-day rally average of 70 and very short-term overbought.
Breadth was +728.
In addition to the high end of volume with
narrowing range after a six-day rally from 983.57, which was right at the 50-day
EMA, yesterday’s action was different in that only one major sector — the (XBD)
— outperformed the major indices at +0.8%. After the SMHs, were the
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BBH |
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-1.4%, while the CYC, RTH and BKX were essentially flat. Also, the
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PPH |
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OIH |
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EBAY |
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GILD |
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ZBRA |
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exception was
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MERQ |
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trade-through entry.
The third significant point from yesterday’s
market action was the Generals throwing money at a few of the top market cap
stocks in the SPX, like
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GE |
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CSCO |
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MSFT |
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AIG |
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another one at +2.0% on 50% more than its average volume. This is the reason
that the major indices were the best performers yesterday. Most big mutual funds
have become quasi-S&P 500 index funds and are constantly changing their
weightings hoping to tweak it enough to outperform the S&P 500 index. Any change
in portfolio weightings from extended sectors would mean that money would most
likely go the big index market cap stocks, which are mostly the big mutual funds
largest holding, and/or into some other sector not so extended, as for example,
the semiconductors were entering the confluence zone for the past eight days.
(See the Aug. 25 commentary.)
For Active Traders
There were enough footprints yesterday to keep
you from running out and playing any first-entry breakouts with the six-day
+4.7% rally. I can’t emphasize enough keeping the intraday dynamics sheet along
with reviewing the index screens on my commentary page every day to maintain a
better feel of the overall market.
Because of the day-long Slim Jim in the major
indices with no travel range, it was slim pickings unless you are one of those
scalpers trying to capture every 1 to 2 point move in the futures all day. Good
luck on your ill-fated mission. The semis provided some good opportunity and is
one of the primary trading vehicles, so you are always (or should be) scrolling
the intraday charts for setups. If you had done that yesterday, you would have
caught the
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KLAC |
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which broke down below all of its EMAs to 56.13. It was a two-and-a-half-hour
Slim Jim, so it’s not like you didn’t see it developing. The SMHs followed at
2:30 p.m. ET, breaking below 37.10 and all of its EMAs, trading down to 36.49.
FYI: You will always find a Slim Jim if you are diligent scrolling the intraday
charts, especially in the most active sectors, like the SMHs were yesterday
trading 11.2 million shares vs. a 7.2 million share average.
Today’s Action
The major indices are all short-term overbought,
so don’t be a hero today on any first trade-through breakouts if, in fact, it
happens. If the market looks soft early, scroll for those Slim Jims at the lows.
If some of the semis, like KLAC -3.2% yesterday, go early red, then look for a
possible Trap Door reflex, but don’t be afraid to reverse sides on a retracement
to yesterday’s highs if it sets up.
Have a good trading day,
Kevin Haggerty
