Easy Pivots

• January 14, 2002
• Kevin Haggerty

The
SPX
(
$SPX.X |
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PowerRating) couldn’t get past the
1158-1160 hourly resistance and then came out of a Slim Jim below 1155.53,
trading down to an intraday low of 1145.45, closing at 1145.60. NYSE volume was
1.2 billion with a volume ratio of just 30, and breadth more negative at -517.
Twenty-three of the Dow stocks finished red. The weekly close for the SPX
finished at the bottom of the week’s range after opening at the top. The 30-week
EMA is 1151.26, and the 10-week is now 1144.27. And last week’s low is 1145.45.
The 50-day EMA is just below that at 1140. Nothing good happens below these
EMAs. 

The NDX
(
$NDX.X |
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closed at 1634, still above its 30-week of 1620 and the 10-week at 1606. The DJX
(
$DJX.X |
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bottom of its range at 99.88. The 10-week is 99.65, and the 30-week is 99.46.

If you look at your
trading plan from the top down, it starts with the market, then sector, group,
and then stock. If you want the highest probability daily chart setups, then
that’s what you should be doing.

The basic industry stocks
have weakened very quickly, with the
(
XLB |
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PowerRating) closing on an outside bar
at the bottom of the range at 21.25, which is below the 30-week EMA of 21.39. On
the daily charts, the 200-day EMA is 21.28. The four-day sell-off in basics was
fast, as price dropped below all its EMAs, but the 20-day EMA is still above the
50-day EMA which is above the 200-day EMA, so that is positive. Perception
changes quickly. Below 21.20 is an air pocket. You now have the 30-week and
200-day EMA as pivots both ways. Next, you should now go to the major basic
stocks and see which ones have a similar pattern. If they come back for them
early this week, you have an easy upside pivot, and you certainly see the empty
space below if we turn red. 

Above all EMAs, you still
have the
(
SMH |
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(
SWH |
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highs, and the
(
$XBD.X |
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(
$RLX.X |
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last week after a strong run-up, but is still above its 50 and 200. These are
sectors that have been leaders, and any rallies from here will certainly come in
stocks from these sectors. The other sector which is sitting on its long-term
average is the
(
$BTK.X |
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PowerRating). These stocks are tough for position players, but
great for daytraders or very short-term traders one to three days.

In the Dow
(
$INDU |
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the best uptrending stocks are
(
INTC |
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(
HD |
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(
IP |
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(
JNJ |
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(
MSFT |
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(
IBM |
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the 50-day EMA at 118.04. The 200-day EMA is further south at 110.42. It is two
bars off its 126.39 high hit last week, so you are now anticipating a pullback
setup near the 50-day EMA. The last consolidation it broke out from was above
117. Now you have some parameters to anticipate putting IBM on your trading plan
watch list. You should always anticipate potential setups at inflection points
in advance.

Stocks
Today

There are very, very
meager pickings on the daily charts. In the NDX, only two top-of-the-range
closes, so continuation is not the early game today. This is the first thing I
look for to determine the mood of the Generals. Then you look at the volume that
goes along with the buying or selling pressure. Look at the money, not some
indicators, which many of you get hung up on.

Daily chart long setups:
(
ECL |
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(
MMM |
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(
DISH |
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(
PAYX |
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(
FNSR |
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(
MU |
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pulled back to its 200-day SMA,
(
FDC |
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(
WLP |
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(
FRX |
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(
AVY |
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a recross of the 20-day. 

On the shortside,
(
AA |
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(
SBC |
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(
GE |
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(
AVP |
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PowerRating),
(
CAH |
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(
MIL |
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News |
PowerRating).

Have a good trading day.

Five-minute chart of
Friday’s SPX with 8-, 20-,
60- and 260-period
EMAs

Five-minute chart of
Friday’s NYSE TICKS