Hard Not To Make Money With Yesterday’s Defined Shorts
What Tuesday’s Action Tells
You
The market action fit our preference for
intraday
short setups in the major indices yesterday following what I said was
“artificial program buying of blue chips” on Monday, which held up
the SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) and Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) to +0.4% gains, while the Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating) and
(
QQQ |
Quote |
Chart |
News |
PowerRating) lagged at +0.2%. Monday’s up day was the fifth
advancing in price for the SPX, but the last four were on declining volume,
which is not what you look for in buying pressure, and is always a red alert
for
a reversal. Both the SPX, 1099.69, and Dow, 10,120, finished -0.6%, while
the
Nasdaq and QQQ were at least 3 – 1 to the negative side vs. the SPX at -1.7%
and
-2.1%, respectively. This followed the negative divergence by the Nasdaq and
QQQ
on Monday.
NYSE volume was only 1.34 billion, with the
volume ratio 33 and breadth just -369, relative to the -0.6% SPX/Dow
move.
In the primary sectors, the gainers into the
month-end four-day move were the leaders in red yesterday. The
(
SMH |
Quote |
Chart |
News |
PowerRating) was
-3.9%, the XBD -1.3% and CYC -1.1%. The
(
RTH |
Quote |
Chart |
News |
PowerRating) was -1.3%, accelerated by
the
consumer spending number.
For Active
Traders
I have included the SPY five-minute chart,
which
starts with the initial short setup which was the opening reversal below
110.86
and the 200-day EMA of 110.89. Some of you might have taken the Gap Pullback
short at the 20 EMA after the down opening, but for sure had to take the
opening
reversal trade. Price declined to a 110.57 low and the 240 EMA zone vs. the
1.272 Fib extension of the last leg up to Monday’s 111.35 high of 110.61
(look
across the chart and see how this number was in play on two more
occasions).Â
The 110.57 low was also back to the minor support of Monday’s Slim Jim
breakout
of the 1:00 p.m. – 4:00 p.m. ET trend up move in price, and also the -1.0
five-day, five-minute standard deviation band.
Once the 110.57 low was taken out, your RST
setup
was in motion. Your choice was to cover and play the RST, or just cover and
wait
for another short opportunity. The low was on the 10:30 a.m. bar, so a
contra
move from that time period wouldn’t be a surprise. The RST trade set up
another
good short opportunity as price advanced to 111.06, right at the .618
retracement to the 111.35 high, but for sure on a re-cross below the 110.89
200-day EMA and 110.85 low. From there it was decline, then retracement to
resistance, starting first with the 200-day EMA, and then that 110.61
number.
The 60 EMA (20-minute on 15-minute chart) contained price all the way down
to
the 110.21 close.
Depending on how strongly you felt about the
short side yesterday, the trades could have been managed differently by many
traders, but the fact is that it was virtually impossible not to make short
side
money from what I count as five short setups with defined
parameters.
Today’s
Action
At 7:30 a.m., I see that there is carryover
red
from yesterday’s decline with the S&P futures -5.30, Dow -37 and
Nasdaq -8. If
you carried over any short index proxy positions because of yesterday’s
profit
cushion, you might have an early bonus if the red numbers are sustained
through
the opening.
First-hour strategies today are closer to
some
defined levels. For example, the SPY 200-day EMA is 109.90 with the -2.0 5-5
standard deviation band at 109.80 – 110.90. The three-month -1.0 band is
110.
Should there be an air pocket down, the -3.0 5-5 band is 109.25 and 233-day EMA
at 109.19. The initial overhead minor resistance would be 110.35, then
110.60.
Also, incorporate today’s volatility band numbers, then you have an
excellent
starting point to look for initial Trap Door setups. You should also
remember
the “90% – 60%” move from your seminar material when you are
managing your trade
or deciding whether to take any Gap Pullback short setup if it
occurs.
The
(
DIA |
Quote |
Chart |
News |
PowerRating)s closed at 101.25 with the
200-day
EMA at 101.09 and -2.0 5-5 standard deviation band at 101. The -3.0 5-5 band
is
100.60, with the 233-day EMA at 100.50. The three-month -2.0 standard
deviation
band is down at 99.25.
The QQQ closed at 34.23 and is revisiting the
33.70 low of 07/26, which is also the -2.0 three-month standard deviation
band.
34.23 is right on the 5-5 -2.0 band, with the -3.0 at 33.90. You have
anticipated the price zone and are ready to play the game based on today’s
price
action.
Have a good trading day,
Kevin Haggerty
