Hedge Funds Give Daytraders SMH Bonus

The 1:30 p.m. ET sell program decline after the

Greenspan/Snow, Senate Finance Committee tariff noise didn’t prevent daytraders

from riding the
(
SMH |
Quote |
Chart |
News |
PowerRating) train as the hedge funds broke it out of its daily

chart range since July 2004. Initial entry was above the 34.80 triple top

ascending triangle and then 34.95. The SMH ran to 35.62 by 11:50 a.m. before

reversing between the +3.0 volatility band zone at 35.81 and the +2.0 volatility

band of 35.46. It was trading at 35.36 when the sell programs started on the

1:30 p.m. bar. The 49.6-million-share volume day was the second highest since

the inception of the SMH, so obviously there was a major agenda to break it out.

The SMH closed at 34.62, so there are some very unhappy campers with the timing of

yesterday’s protectionist rhetoric. FYI: In my 34 years, any protectionist

policies have been an anathema to the market.

The bottom line at day’s end was the SPX

(
$INDU |
Quote |
Chart |
News |
PowerRating) was -1.6% as that kind of tariff hype would hit the basic

materials and industrial stocks the most. The XLB was -2.4% and XLI -2.0% as

both closed below their 40-week EMAs, as did the Transportation index ($TRAN) at

3456 with the 40-week EMA at 3500. The
(
DIA |
Quote |
Chart |
News |
PowerRating)s closed at 104.05 with the

40-week EMA at 104. I have included most of these charts today, and you can see

the
1,2,3 LT patterns in progress with parallel line definition (AB=CD) and some

initial sequence. Regardless of the reason, the price action is negative on

those weekly charts relative to the SPX rally to last week’s highs, not to

mention the divergences I have pointed out in previous charts. If your memory is

not too short, the Dow Industrials topped out on 01/14/00 vs. the SPX in March

2000, and that is why the basic materials, industrials and transportation stocks

are most often early red alerts.

NYSE volume was relatively light prior to the

1:30 p.m. sell programs and finished the day at 1.56 billion shares with the

volume ratio 29 and breadth -932. The only sectors that closed green were the

(
OIH |
Quote |
Chart |
News |
PowerRating), +0.8%, as crude oil hit $60 and gold with the XAU +0.5%. The Generals

will hold price the best they can into month-end, so any strong early weakness

will be a daytrader’s long opportunity.

Have a good trading day and have a great weekend,

Kevin Haggerty

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