Don’t Force It, React To It
On
Friday, it was the early short entry below 61.22
in the
(
QQQ |
Quote |
Chart |
News |
PowerRating)s right out of the gate as they proceeded to trade down to an
intraday low of 56. Regardless of the current volatility surrounding the
earnings and Fed moves, the bell still sounds at 9:30 a.m. ET this morning. You
make your trading plan and are ready to react to direction.
Looking at the SPX on a
daily chart, you see that on Thursday the index made a swingpoint high of 1350
which was confirmed on Friday’s wide-range-bar down, closing at 1298.35. 1350 is
right at the down trendline drawn from the November high and is right at the
50-day EMA, so there is no mystery at what the upside hurdle is: The 1275 low
must hold and the 1350 high must be broken to reverse the downtrend.
The NDX 100 got taken down
7.8% on Friday and is still below all of its EMAs. The 50-day EMA and the down
trendline is up at the 2700-2750 level. That is 21% above Friday’s close of
2267.85. If Friday’s low of 2252 is knocked out, the Wednesday low just below
2100 will immediately be challenged.
It is easy to frame the
obvious trend, but in daytrading you must take it down to the intraday-chart
level, especially when there are no long setups on the daily charts. After
Friday’s wide-range-bar closings in the bottom of the range, there are many
short setups on the daily charts with entry — either first or second — below
Friday’s low.
Focus on the chosen ones
for those short-side trades. The short setups are obvious, but what do you look
at for long entry today if they start to rally? For example, let’s look first at
the S&P 500. The Friday high was 1334, the low was 1294.95, and it closed at
1298.35, right at the bottom of the range. The closing range on the five-minute
chart was 1300-1295.Â
The first possible long
entry is above 1300, which is also above the 20-period EMA. The second possible
entry is above 1308, which puts the index above both the 20- and 60-period EMAs.
The third entry would be above the 1313-1314 level, which puts the index above
all three EMAs, the 20-, 60- and 260-. On
the short side, breaking of the 1294.95 low is your entry point.Â
Looking at our extremely
volatile friend, the NDX 100, I
would frame it on the five-minute intraday chart as follows: The high was
2463.48, the low 2252.36 and close 2267.85, which is, of course, at the bottom
of the daily range. The closing range was between 2275 and 2250. On the upside,
above 2275 takes the index above the 20-EMA; above 2314, above both the 20- and
60-, while above 2323, it clears all three EMAs. The first short entry is below
2250, and as with all entries, it should be a trade-through entry, not a gap
down on the opening.
The two proxies for the NDX
100 and SPX are the QQQs and SPYs. Both these indexes are now framed, so you
have levels of action and you can just focus on the market dynamics to determine
entry. Because of the
bottom-of-the-range closes, you should be alert for Trap Doors and Fading the
Open if we go south on the opening.
face=”arial, helvetica”>(March Futures) | ||
Fair | size=2>Buy | size=2>Sell |
14.15 | Â 15.50Â | Â 12.65Â |
The QQQs closed at 56 5/8
in a 14-bar closing range between 57 and 56. Trading above 58 clears all three
EMAs to the upside, while the intraday low and bottom of the range is 56. Above
57 5/8, the Qs clear both the 20- and 60-EMAs. You can get the five-minute
intraday charts with the 20-, 60- and 260-EMAs on Big Charts, if you have a
vendor that doesn’t let you set the EMAs.
My primary focus today
would be the QQQs, SPYs, DIAs and SMHs. I would stay away from individual stocks
until there is a Trap Door or Fading the Open setup, so that you can play any
contra move. The next step would be to play the pullback or retracement if any
trends develop. I would only buy pullbacks that set up above the opening price
and sell retracements below the opening price.
Have a good trading day and
book now for my February 2001 seminar
in Naples, Fla. (see below).
