Don’t Get Too Cerebral About Flash Price Moves

• June 16, 2004
• Kevin Haggerty

What Tuesday’s Action Tells
You

The SPX
(
$SPX.X |
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PowerRating) rallied 18 days off
the
1076.32 low to the 06/08 1142.18 high, a gain of +6.1% low to high. It was
an
advance from a short-term oversold condition at a rising 200-day EMA, in
addition to the other sequence confluence at the zone. The numbers reversed
to
short-term overbought at the 1142 high, with a 5 RSI of 83, slow stochastic
(14,3,3) 95, 4 MA of the volume ratio at 60, with the breadth ratio weak at
+308. The advance to 1142 was on obvious declining volume, and I am never a
fan
of rising prices and declining volume.

From 1142, the SPX declined three days to
1122 on
Monday, which was also the 20-day EMA and the 21st day of the advance off
the
1076 low. After the three-day retracement to Fib count day, any up day would
not
be that much of a surprise, since the 4 MA of the volume ratio was 37, and
the 4
MA of advances minus declines was -926. Also, as a key Fib time period this
week, and also a Triple Witch expiration, so volatility is expected. There
has
been some volatility in price, but the lack of volume indicates the Generals
are
not pushing this advance at these levels and the risk of taking long
positions,
other than daytrades, is very high at these levels.

NYSE volume yesterday was 1.34 billion, the
volume ratio one-sided at 78 and breadth +1838, with a big assist from the
(
TLT |
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PowerRating) (bond proxy) move of 2.1% from an oversold zone, more so than for
any
good economic reason regardless of the empty suit chatter on TV. The other
two
sector leaders were the XAU and OIH, both +2.8%. With the bond advance, the
small caps, with the IWM +1.8%, also outperformed the SPX and Dow
(
$INDU |
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which were +0.6% and +0.4%.

The
(
SMH |
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PowerRating)s followed Monday’s -1.9% day at
+1.4% yesterday, while the brokers (XBD) was +1.2%. The
(
QQQ |
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PowerRating) closed at
36.82, +1.4%, and the Nasdaq
(
$COMPQ |
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PowerRating) +1.3% at 1996 with all of the
technicians eyeballing the big rolling head-and-shoulder pattern that has
formed
with the neckline around the 860 – 880 zone, which is also below the 1924
200-day EMA. Even the empty suits are following that saga.

For Active
Traders

The morning gap up yesterday carried the SPX
to
an 1137.36 intraday high on the 12:55 p.m. ET bar, and then it had an air
pocket
down to 1128.84 before moving up in the last 30 minutes to an 1132 close.
The
SPX decline led the QQQ, which made an intraday high of 37 on the 2:00 p.m.
bar,
then declined to 36.64 and the 240 EMA, closing at 36.79. The SPX made it to
the
1.5 volatility band level of 1137.32, which was also the .786 retracement to
1142 from 1122. Net net, if you felt as I did, you laid some off at the
zone.
The QQQ with a 37 intraday high was just below the 37.08 2.0 volatility
band,
which is also the .618 retracement to the 39 high of 01/12/04 from the 03/24
34
low.

“SEQUENCE. SEQUENCE.
SEQUENCE.”

Today’s
Action

It is reactionary mode only, not initiation
from
the long side at these levels in a key time period and option expiration
week.
The higher probability is selling into further rising prices on
light/declining
volume. The intraday game for the rest of the week belongs to the program
and
option gangs, so don’t get too cerebral about flash price moves, which most
likely will be better fades for the remaining three days.

Have a good trading day,

Kevin Haggerty