Excellent
We had
a big negative scorecard again, but
it was just an excellent day for traders. The Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) ended -2.9%, SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) -3.3%, the Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating) -2.8%, the NDX 100
(
$NDX.X |
Quote |
Chart |
News |
PowerRating) -2.7%, while the
(
SMH |
Quote |
Chart |
News |
PowerRating)s continue to hold the previous low of
27.05. The SMHs finished -1.9%, closing at 28.23. NYSE volume was big at 2.2
billion, or 60% above average. The volume ratio was just 13, with 1.9 billion
down and breadth at -1975. The Nasdaq traded 2.3 billion, which is about 30%
above its average.
Regardless of which
indicator you look at, the rubber band is stretched way out. The five-day
advance/decline ratio is -1005, NYSE stocks greater than their 200-day moving
average is down to 26%, and the media hysteria level is off the charts. The Dow
and SPX are beyond their longer-term 3.0 standard deviation bands, while the
Nasdaq Composite is right at its 2.0 band. I am sorry to see the early green in
the futures. It would be better if they pulled the plug on the opening and got
it back down to the levels of confluence mentioned in yesterday’s
text.Â
Yesterday there were
defined entry patterns in the major indices that enabled you to catch the
morning downtrend and then the afternoon uptrend from 12:30 to 2:00 p.m. Some of
you might have even played the 1,2,3 short entry on the 2:35 p.m. bar for both
the SPX and DJX, catching the third trend move of the day. You are excused from
the third one provided you caught the first two.
Both the SPX and DJX gave
you 1,2,3/Triangle shorts below all of the 8, 20, 60 and 260 EMAs on the
five-minute chart when the programs were initiated at about 11:00 a.m. The SPX
then traded down 17 points to yesterday’s 2.0 volatility band of 820 before
giving you a signal bar, which was the 11:40 a.m. bar. That was a good reversal
entry, but it only ran for 5 points before trading back down to an 813 intraday
low on the 12:35 p.m. bar, which was another narrow-range signal bar doji. Entry
was above 814.65, and it carried 28 points, or 3.4%, to 842.81, which was the
.618 retracement to the intraday high before reversing back down to close at
819.85. I told you in yesterday’s text that you’ve got to keep probing because
the one you catch will be a big one.Â
Seminar attendees
recognize this as a net minus situation and you might have taken the short trade
at the .618 retracement level or sold longs into it. You had to take the 1,2,3
short, or else sold your longs on the 2:35 p.m. bar, which put the SPX below all
of its moving averages again. Entry was below 832.97 and the SPX closed at
819.85. You tell me whether it was a good trading day or not.
The DJX gave you the same
narrow-range doji bar that the SPX did, with entry above a 7735 high and right
at the 2.0 volatility band level which was 7747. More importantly, the DJX was
right in that strong zone of confluence I mentioned yesterday from 7700 – 7750.
The best moves are usually the first ones from these zones. The more the index
bangs on the level, the weaker it gets, especially the third and fourth times.
At the same time that the
DJX and SPX gave you entry, the SMHs had already given you a 1,2,3 entry above
28.30, which ran to 29.44 before selling back down to a 28.23 close. When the
trades are so clearly defined as they were yesterday, I like to outline them for
you so you can go back through them and hopefully save the charts for future
reference. You make money with that, but you don’t with the subjective opinions
I am hearing all too many of these days. It never ceases to amaze me how smart
people get after the obvious, but how few can anticipate. The stronger the daily
emotion is, the better the pattern, and it makes no difference which direction
for the daytrader.
Have a good trading day.
Five-minute chart of
Monday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Monday’s NYSE TICKS