Here’s How To Get Lucky
What Wednesday’s Action Tells You
The SPX
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$SPX.X |
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yesterday vs. 996.73 on Tuesday, while yesterday’s range was a low at just 4.72
points with a 998.05 high and 993.33 low. That qualifies the entire day as a
closing range. NYSE volume was once again low at 1.05 billion shares, but the
volume ratio was positive again at 63 vs. 64 on Tuesday. Breadth improved to
+662 from +237. The SPX was flat, as was the Dow
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$INDU |
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The Nasdaq
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$COMPQ |
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again, which gave us a setup yesterday. It was all technology yesterday, with
the
(
QQQ |
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(
SMH |
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36.95, +2.6%.
The SMHs were green all day, starting with the
9:45 a.m. ET period on the intraday dynamics sheet. By 11:30 a.m., the SMH was
+1.4%, QQQ +0.3%, while the SPX was -1 point and the Dow -10 points. TRIN was
running at .80, essentially the low to that point and the total volume of 326
million shares on a run rate of 1.1 billion shares, but you are not expecting
big volume pre-holiday, as we are just waiting for the “game” to start as it did
Tuesday afternoon. When liquidity is thin and professionals are avoiding taking
on much inventory pre the long weekend, daytraders just want that quick price
move and could care less about the immediate volume because it’s not that kind
of day as the Generals are quiet and prices can be easily muscled by the “game”
players on light volume and futures manipulation.
From 10:45 a.m., five of the major sectors were
green, with the BKX and
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CYC |
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the 1:00 p.m. time period. The BKX was red all day. By the noon hour, the
dynamics, with the positive divergence in QQQ, Nasdaq and SMH, in addition to
the SPX and Dow both quiet, you had every reason to anticipate the possibility
of an upside move, the same as Tuesday.
For Active Traders
After reading yesterday’s commentary, you knew
the Nasdaq and Dow had the best shot of taking out the July highs again, so
traders saw the Nasdaq gearing up first, as it formed a narrow-range 4 point
Slim Jim between 1775.91 and 1777.91 from 10:40 a.m. until the breakout on the
1:10 p.m. bar. Because of the positive divergence all morning in the Nasdaq, SMH
and QQQ, you had a technology focus and were deciding how to play it if the
Nasdaq broke above 1776. I have included charts of the Nasdaq, SMH and QQQ to
illustrate what followed the early morning picture of positive divergences by
tech.
Looking at the Nasdaq chart, you see the breakout
from the Slim Jim above 1776, which was preceded by the positive divergence in
the 8,3,3 slow stochastic. The breakout was also above all of the 8, 20, 60 and
240 EMAs and also to new intraday highs. The previous day’s high was 1771.22, so
our Slim Jim lower boundary was just above that at 1771.91, which made it an
excellent setup. The breakout went to 1783 by the 1:45 p.m. bar, came back in to
1774 on the 2:35 p.m. bar before turning around again, trading up to 1783 and
closing at 1782.13. The breakout was no moonshot, but did provide opportunity in
individual stocks like
(
KLAC |
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(
INTC |
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PowerRating) along with the SMHs, just to
name a few. The market didn’t really accelerate vis-Ã -vis the SPX and Dow, but
the trade logic was positive for you to initiate from the long side.
Looking at the SMH chart, you can see the two
narrow-range Slim Jims. The first breakout above 36.50 on a volume spike, then
went sideways, forming a second Slim Jim, which broke out first on the 12:40
p.m. bar, then accelerated on a wide-range bar when the Nasdaq broke out at 1:10
p.m. Being that the SMH was the best performer all morning, one would assume
that you would take a trade in the SMH or some other semi that set up. The SMH
ran to 37.03, traded back down to 36.64, then up to 37.03 again, closing at
36.95 (not show on chart). It was only a +1.3% move from entry to high, but we
can’t know the duration and extent, just that it was a good setup and the trade
must be taken.
KLAC broke out of an ascending triangle on the
1:10 p.m. bar above 57.78, running to 58.50, back to 57.84, then up to 58.59,
closing at 58.51. INTC made a +1.7% move on a 1:10 p.m. breakout from a
symmetrical triangle pattern. Point is, scroll for those individual stocks
setups in the strongest sectors as the day progresses. That’s how you get lucky.
The more you scroll, the more lucky you get.
If you had just chosen the QQQs for a trade, it
was a disappointment. The QQQs broke out of a trading range to new intraday
highs above 32.68, but only traded up to 32.81 before trading back down into the
range to 32.59, which should have meant your initial trade was scratched at no
worse than breakeven. The QQQ then came out of the range a second time above
32.68, but only traded up to 32.83, closing at 32.80. The semiconductor choice
was obviously the best, both pre-trade and after, but taking the QQQs was still
good trade logic based on its positive divergence prior to the Nasdaq Slim Jim
breakout. There was just not enough follow through and the computer lights
didn’t light up, so the “game” away from the semis didn’t really get going.
Today’s Action
For today, we start out with the Nasdaq above its
July highs and the Dow at 9334, just below its 9353 July intraday high, so their
trading action today is again a focus. Friday is the last trading day of the
month, so there is every reason to expect the possibility that “they” might push
the indices higher into month end, which means don’t get aggressive on the short
side today and Friday.
Have a good trading day,
Kevin Haggerty
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