Formulate Your Plan, Define Your Risk And React With Intelligent Strategies
What Friday’s Action Tells
You
The Generals closed the 2003 year in fine
fashion
with a +1.7% gain for the last seven trading days of the year and +26.4% on
the
year close to close, but more importantly to all of you, about +45% from the
October 2002 bear market low. The Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) closed 2003 at 1044,
+25.3%
close to close, and also +45% low-to-high from the October 2002 lows. On
Friday,
the SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) hit an 1118.85 intraday high before reversing, and
the
Dow hit a 10,527 intraday high.
The last six weeks into year-end were price
persistent and up with no retracement. The SPX chart from the 12/31
commentary
shows this weekly trend, and the actual intraday and weekly high was 112.68
on
12/31, but the chart was run on 12/30. All of the 5-, 15- and 40-week EMAs
are
rising, as are both the 5- and 14-week RSIs. The 5-week RSI on both the SPX
and
Dow are over 85. Until there is a change in this chart picture, you don’t
need
any long-term commentary from the empty suits to confirm what is obvious,
unless
you are a more astute market participant and want to protect much of the SPX
or
index proxy gains that you have on a mark-to-mark basis from your entry
point in
2002, or for sure, the retracement in March 2003 (February for the
QQQs).
Based on the business cycle and presidential
cycle, the probability that 2004 will be an up year is very much in your
favor.
The economic numbers that are fed to us with much hype are perceived as
favorable, and the Fed hasn’t started to raise rates yet, so there is more
room
in the current business cycle the way I approach the overall picture. The
next
cycle top projects to early 2005, and the next bottom trough in mid- to late
2006 or early 2007 (more on that as we go).
For Active
Traders
In the short term, after this recent rally,
most
all of the Momentum, Sentiment and other lagging indicators like RSI,
Stochastics, etc., are all extended and overbought. The SPX and Dow are out
to
extreme, longer-term volatility-band levels, and that is a short-term red
alert.
The leading indicators — which I will cover
in
depth in my new “Sequence Trading Module” that will be ready in
late February or
the first week in March — are very much alive into this 1100 – 1160 zone.
1160
and 1150 are the .50 retracements to the 1553 all-time high and 1530, which
was
the 1,2,3 retracement to 1553. As you can also observe on the chart, the
head-and-shoulder breakout measures up to the 1110 – 1115 zone. In fact,
this
zone gave us the first good SPX trade of 2004. On Friday, the SPX traded up
to
1118.85 on the 10:55 a.m. ET bar, then broke the uptrend line from the 1106
low
on Wednesday and formed our old reliable 1,2,3 lower top. The trend entry
was
below the 1116.14 low of the 11:25 a.m. bar. This reversal from the
head-and-shoulder price zone traded down to 1105 by the 3:20 p.m. bar before
closing at 1108.43.
If you missed that, you should have caught
the
Slim Jim between 1115.12 and 1113.56. The breakout down put price below all
of
its 8, 20, 60 and 240 EMAs (five-minute chart). It doesn’t matter whether
you
traded the futures or the
(
SPY |
Quote |
Chart |
News |
PowerRating), you started 2004 off with a good plus
day.
There are, as I said, other significant
numbers
within that zone that I didn’t label for various reasons, but suffice to
say, it
is a higher-probability zone for any short-term reversals/retracements, and
with
the weekly chart I gave you on 12/31, you had more than enough to make you
take
the initial SPX 1,2,3 and/or Slim Jim trades.
Going forward this year, this corner will
replace
long-term index proxies like
(
DIA |
Quote |
Chart |
News |
PowerRating), SPY and
(
QQQ |
Quote |
Chart |
News |
PowerRating)s with their leap
call
substitutes, and also sell out-of-the-money short-term calls against them
each
month. That takes cash off the table, helps define risk and enables good
participation on the upside. You can control your risk with different option
strategies, but you can’t control all of the forces that can send the market
down. You can identify high-probability zones of action in advance, but you
can’t predict them, yet you can react to them with intelligent strategies.
Most
of you have good longer-term position gains, and the trading tree gets
weaker as
the market indices trade higher into 2004, so you had better formulate your
plan
to define your risk and still participate in most of the upside.
Today’s
Action
As on Friday, this corner will take advantage
of
any good short daytrading setups, as well as longs, especially into this new
resistance/short-term reversal zone. This was not the case in the last weeks
of
2003, as the Generals and hedge funds defended and pressed their 2003 gains
into
year-end. This coming week can give us some good information as the Generals
position themselves for 2004, so be watching my screens closely each day for
sector and group information. This commentary was completed on Sunday, so
the
early futures activity is unknown.
Have a good trading day,
Kevin Haggerty
(chart originally posted on 12/31/03)
| size=2> |
Monday
12/29 |
Tuesday
12/30 |
Wed.
12/31 |
Thurs.
1/1 |
Friday
1/2 |
Net
|
| color=#0000ff>Index |
|
|
||||
| color=#0000ff>SPX |
|
|
|
|||
| color=#0000ff>High |
1109.48
|
1109.75
|
1112.56
|
H
|
1118.85
|
1118.85
|
| color=#0000ff>Low |
1095.89
|
1106.41
|
1106.21
|
|
1105.08
|
1095.89
|
| color=#0000ff>Close |
1109.48
|
1109.64
|
1111.92
|
O
|
1108.49
|
1108.49
|
| color=#0000ff>% |
+1.2
|
0
|
+0.2
|
|
-0.3
|
+1.1
|
| color=#0000ff>Range |
13.59
|
3.34
|
6.35
|
L
|
13.8
|
23
|
| color=#0000ff>% Range |
100
|
96
|
89
|
|
25
|
55
|
| color=#0000ff>INDU |
10450
|
10425
|
10454
|
I
|
10410
|
|
| color=#0000ff>% |
+1.2
|
-0.2
|
0.2
|
|
-0.4
|
+0.8
|
| color=#0000ff>Nasdaq |
2006
|
2009
|
2003
|
D
|
2007
|
|
| color=#0000ff>% |
+1.7
|
+0.1
|
-0.3
|
|
+0.2
|
+1.7
|
| color=#0000ff>QQQ |
36.46
|
36.56
|
36.46
|
A
|
36.40
|
36.40
|
| color=#0000ff>% |
+1.7
|
+.3
|
-0.3
|
|
-0.2
|
+1.5
|
| color=#0000ff>NYSE |
|
|
|
Y
|
|
|
| color=#0000ff>T. VOL |
1.06
|
978
|
985
|
|
1.1
|
1.03
|
| color=#0000ff>U. VOL |
947
|
513
|
521
|
|
593
|
644
|
| color=#0000ff>D. VOL |
104
|
413
|
434
|
|
526
|
369
|
| color=#0000ff>VR |
90
|
55
|
52
|
|
53
|
|
| color=#0000ff>4 MA |
66
|
65
|
66
|
63
|
|
|
| color=#0000ff>5 RSI |
88
|
88
|
89
|
74
|
|
|
| color=#0000ff>ADV |
2533
|
1904
|
1561
|
1745
|
1936
|
|
| color=#0000ff>DEC |
773
|
1345
|
1698
|
1503
|
1330
|
|
| color=#0000ff>A-D |
+1760
|
+559
|
-137
|
+242
|
+2424
|
|
| color=#0000ff>4 MA |
+907
|
+834
|
+770
|
+606
|
|
|
| color=#0000ff>SECTORS |
|
|
|
|
|
|
| color=#0000ff>SMH |
+2.2
|
-0.1
|
-0.5
|
-0.2
|
+1.4
|
|
| color=#0000ff>BKX |
+1.0
|
+0.2
|
+0.1
|
-0.6
|
+0.7
|
|
| color=#0000ff>XBD |
+2.2
|
+0.1
|
0
|
-0.4
|
+2.7
|
|
| color=#0000ff>RTH |
+1.1
|
+0.3
|
+0.1
|
-1.9
|
-0.4
|
|
| color=#0000ff>CYC |
+1.3
|
-0.7
|
+0.1
|
-0.5
|
+0.2
|
|
| color=#0000ff>PPH |
+1.0
|
0
|
+0.5
|
+0.7
|
+2.2
|
|
| color=#0000ff>OIH |
+0.7
|
0
|
-1.3
|
-0.3
|
-0.9
|
|
| color=#0000ff>BBH |
+0.4
|
0
|
-0.5
|
+0.4
|
+0.3
|
|
| color=#0000ff>TLT |
-0.9
|
-0.4
|
-0.4
|
-1.1
|
-2.8
|
|
| color=#0000ff>XAU |
+3.2
|
-0.4
|
-0.8
|
+0.6
|
+2.6
|