Extended Price Decline Provided Good Opportunity Yesterday

After a violent terrorist attack in London, the

SPX
(
$SPX.X |
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PowerRating) traded down to 1183.55 on the 9:35 a.m. ET bar, which proved

to be the intraday low. This extended price level was vs. the -1.5 volatility

band of 1184.97 and -2.0 volatility band at 1181.64. There was a quick reflex to

1188.92, then a retest of 1183.55 and then volatility reverted to the mean as

the SPX went trend up to 1198.46, closing at 1197.87, +0.3% on the day. I would

bet that the “Plunge Protection Team” was involved early yesterday morning to

avoid any downside from getting out of hand.

The down volume outpaced up volume by a ratio of

5:1 at 10:00 a.m. with gold the leading sector and the
(
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PowerRating) +0.7%. The XLB

(basic materials SPDR) led the red sectors at that time, -1.4%, so that price

action was not abnormal based on the situation. At day’s end, the XLE was +1.3%

volume expanded to 1.52 billion shares with the volume ratio 50 and breadth

+318, so those traders who took advantage of the extended price declines after

the attacks had an excellent trading day.

Daytraders also caught some nice moves in the

energy sector, such as the XLE breakout of a Slim Jim above 46, trading to

46.56, and an
(
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PowerRating) Slim Jim breakout above 86.40 which ran to an 89.22

intraday high with no stop out threat. These are just two energy examples of

many similar setups.

For today, the early futures are green with the

S&Ps +3.30, Dow +27 and Nasdaq +7.5. Why do I get the feeling that it is a “You

can’t hurt our markets” induced situation by the PPT because it certainly can’t

be for the very dubious method how the jobs data is calculated.

SPX 1200 is the initial 816 EMA (five-minute

chart) which is the same as the 34 EMA on your 120-minute chart, and this can be

an early focus level today. The 480 EMA is 1197.67 and 240 EMA 1195.91.

It is not your normal market when the Fed’s

Protection Team is active to stem the downside and Programs become a much larger

percentage of the daily volume and random price movement, especially around

month- and quarter-ending periods. For example, the NYSE program percentage

participation was 53.3% for the week ending 06/07, 61.5% 06/24 and a huge 76.3%

07/01 into the June quarter end with all of the rebalancing and reallocations.

Daytraders should be very nimble in this market, especially through July and

August, by keeping your position size a bit smaller and/or taking some profits

earlier in the trade and moving to breakeven sooner.

Have a good trading day and a great weekend,

Kevin Haggerty

P.S. I will be
referring to some charts here:
www.thechartstore.com in the future.