Don’t Get Caught Naked Long — Here’s Why
What Wednesday’s Action Tells
You
The SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) traded in a 3.7 point
range between 1096.94 – 1093.24 in a contracted volatility pattern until the
breakout from the Slim Jim above 1096.08 carried the SPX to an intraday high
of
1106.29 and an 1104.96 close of +0.8%. The Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating), 10,182, was
also
+0.8%, while the Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating), 1862, was +1.3%, and the
(
QQQ |
Quote |
Chart |
News |
PowerRating)
+1.4% to 34.55. I have included yesterday’s SPX five-minute chart which
outlines
the Slim Jim-pattern breakout above all of its EMAs, and you either traded
the
(
SPY |
Quote |
Chart |
News |
PowerRating) or future out of this SPX pattern.
NYSE volume at 1.19 billion shares was just
above
the lightest day of the year on Monday and had a volume ratio of 75 and
breadth
of +1335. All sectors were green, led by the XAU, +2.7%, and brokers (XBD)
+2.0%. The
(
SMH |
Quote |
Chart |
News |
PowerRating) was +1.1% after the -2.3% on Tuesday. It has yet to
close
above its 20-day EMA since the rally off the 28.30 low and .618 retracement
zone
on 08/13. Low-to-high, the reflex from this price zone has been +9.5%. The
20-day EMA is 30.70 and initial overhead trading resistance at 31.40.
For Active
Traders
It was a Slim Jim day for the SPX and Dow,
which
also means many of the index-related stocks, such as
(
DD |
Quote |
Chart |
News |
PowerRating) whose chart I
have
included. Notice that DD preceded the SPX breakout, as did
(
DOW |
Quote |
Chart |
News |
PowerRating) and
some
other big-cap index stocks.
Today’s
Action
Friday was the eighth day of the rally, and
the
previous opposite day followed the fifth trading day. The futures are flat
as I
do this at 7:00 a.m. ET, so there is no indication of First-Hour
strategies…yet. The SPX is pushing the 1108.60 last swing point high
resistance with the .618 retracement to the 1146.34 high of 06/24 at 1114.
If
you put a stop above 1108.60 for a scale short position trade into the 200 –
233-day EMA resistance, then you are prepared to exit with less than a -1.5%
loss, which was certainly reduced if you continued to take the intraday
setups,
such as yesterday’s SPX Slim Jim which ran +0.9% from entry. The .618
retracement zone at 1114 is where another potential short setup will occur,
at
which point you take the intraday trade and keep it at day’s end if there is
a
profit cushion. The +2.0 20-day, 30-minute volatility band is also about
1114.
It is August, but this rally off the price
zone
for the major indices and the SMH has been a rising-price/declining-volume
move
which also precedes September, historically the worst month of the year.
Also,
the terror alert comes front and center this week with the Republican
Convention, so if you get caught naked long, that is simply P— Poor Prior
Planning.
The synthetic straddles remain on for the SPX
and
QQQ, while the SMH was taken off nicely, as I have mentioned in previous
commentary, into the 28.19 (28.30 low) .618 retracement zone to the October
2002
17.32 low.
Have a good trading day,
Kevin Haggerty
