Generals Pullback Zone Alert

confluence with a shorter-term price and time zone. I said that if the market

advanced into last week to the retracement zones of the
(
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high that the highest probability was a downside reversal. The SPY rallied 13

days to its 118.08 high last Monday and was short-term overbought on the 5 RSI,

in addition to a 4 MA of the volume ratio at 65 and 4 MA of breadth at +760. The

reversal last Monday took the SPY down to a 114.80 intraday low on Friday before

closing at 115.72. The 200-day EMA is 116 and the 233-day EMA 115.36, so that is

was unable to close above 104 resistance, hitting a 104.08 high on 05/05 and

declining to a 100.86 intraday low on Friday before closing at 101.67, well

below its 233-day EMA (103.27) and 200-day EMA (103.65). The 20 EMA < 50 EMA < 200 EMA, so this is a “below the line” index, as is the Nasdaq Composite. The (
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had traded down by -13.5% from its 12/31/04 year-end close to a 113 low on

04/29/05 vs. its .618 retracement (113.21) to the August low. The initial

support was the 120 level, which has now become the current primary resistance,

along with the 200-day EMA at 119.42. The anticipated plan of action was to take

a short-term bias on a retracement to the 119.40 – 120 zone. Last Monday, the

IWM hit 120 and reversed down to 114.89 on Friday, closing at 116.18. The IWM

(Russell 2000) topped out following the current
(
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technology, due mostly to Friday’s action. The QQQQ was +1.1% on Friday and

+1.1% on the week, greatly attributed to
(
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to announced earnings and a bevy of hedge fund shorts running to cover, in

addition to the herd of retail investors that do nothing but buy announced

earnings and lose 95% of the time. DELL was a “below the line” stock into Friday

with Thursday’s 36.61 close, below its declining 200-day EMA of 37.84. The
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technology stocks, so we must be alert to the large hedge funds and Generals

that might try to push the seasonal bias to get this market turned around.

Because of the technology weighting in the S&P 500
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benefit a bit more than the Dow
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The QQQQ had declined 20.5% from 40.68 (12/15/04) to 34.35 (04/29/05). The QQQQ

closed Friday at 36.24 vs. its 233-day EMA of 36.49 and 200-day EMA of 36.60,

and closed at 1154.05, -0.5%. The initial trading focus on Monday is 1155.08

(233-day EMA) and 1160.76 (200-day EMA). Depending on Monday’s action, you must

be ready to work the lines both ways as daytraders. The Dow was also -0.5% to

10,140, the Nasdaq +0.7% and QQQQ +1.1% to 36.24. NYSE volume expanded to 1.72

billion shares (most for the week) with a volume ratio of just 27 and breadth

-825, which indicates the narrow positive impact of a few technology stocks.

positive one on the week at +2.6% (all on Friday). The downside was led by the
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-6.2%, of which, -5.5% came on Thursday and Friday as crude oil took a dive.

Keep in mind the XLE was + 31% in 42 days from 34.54 (01/06/05) to 45.14

(03/09/05). The angle of advance was extreme, and the XLE never traded once

below its 10-day EMA until the 45.14 high. The XLE had advanced +129% since the

07/24/02 low, so obviously the Generals have been taking money off the table

since the 45.14 high. However, this decline from that high has been the biggest

source of profit for daytraders trading the retracements to the 20-, 50- and

89-day EMAs. The XLE closed at 38.80 on Friday at the bottom of its downward

channel and is entering the Generals’ pullback zone which is a level where the

Generals will probably roll back into some stocks that they had sold higher. The

.618 retracement to 34.54 is 38.59, then there is the 37.90 support level,

followed by 37.70 (200-day EMA) and 233-day EMA (36.97). The 89-day EMA gave

daytraders lots of very profitable long action on three occasions, and you can

bet we will get more in this most important zone. This is the first retracement

last week, in that the
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week, while the XAU declined -8.1%, which was also attributed, in part, to the

drop in crude oil. This set up excellent short continuation trades in, for

month outlines the perception that it is late in the business cycle and growth

has slowed, yet is still expanding, so the portfolio weightings have shifted to

there are any seasonal games starting in technology, whether the Generals come

back for some of the energy stocks as the XLE approaches its longer-term moving

averages, and we should also be ready to take advantage, on the short side, of

those “below the line” indices and big-cap stocks on retracements to the