Here’s Why You Should Watch The SMH…
What Friday’s Action Tells
You
The market action on Friday was similar to
Monday, and on the week, the SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) closed at 1064.80, +0.1%,
vs.
the previous week’s 1063.97 close. NYSE volume was 1.17 billion vs. Monday’s
1.08 billion and averaged only 1.26 billion for the week. Breadth was +558
on
Friday with the 4 MA flat at +88 and the 4 MA of the volume ratio now 47, so
it
tells us very little. The SPX low close for four of the past six days have
been
in the 1063.75 minor support zone at 1063.97, 1065.22, 1063.23 and Friday’s
1064.80 close. The other two closes were 1079.07 and 1075.79 last Tuesday
and
Wednesday. This zone has provided daytraders with some decent intraday
trades,
but I expect this zone to be resolved this week. The better SPX position
opportunity will come from, or around, the 1010 – 1020 levels with the .382
retracement to 769 from 1163 at 1012.
The
(
QQQ |
Quote |
Chart |
News |
PowerRating) hit a 32.37 intraday low on
Thursday, followed by 32.35 on Friday vs. its 31.65 .382 retracement to
19.76,
so it’s already there. The
(
DIA |
Quote |
Chart |
News |
PowerRating) closed Friday at 98.70 vs. its .236
retracement at 99.45 and .382 retracement down at 94.21. The Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating) at 1757 on Friday and same as the QQQ, is at its .382
retracement zone to the October 2002 low, which is 1754 with a 1751 intraday
low
on Friday.
The Nasdaq and QQQ have gained 94% and 97%
off
their October 2002 lows, and price has now made a .382 retracement, so it’s
a
key price zone because if it gets taken out by more than a small percentage,
the
SPX and Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) will follow down quickly to their own .382 levels.
Following a strong third wave for the major indices, there is nothing
unusual
about a .382 retracement with price below a still rising to flat 200-day EMA
for
the SPX, Dow and QQQ. However, the most negative aspect is the extent of the
semiconductor decline, as the
(
SMH |
Quote |
Chart |
News |
PowerRating), with a declining 200-day EMA, hit a
28.30 low on Friday, closing at 28.95. The .618 retracement level to the
17.23
October 2002 low is 28.19. That is from the 45.78 bull market high, so this
is a
major price zone and focus this week.
Today’s
Action
Friday was just a choppy day for major index
active traders and not worth commenting on. At 8:00 a.m. ET, I see that the
futures are flat, so we start the day with the key retracement levels as our
focus price zones. The QQQs closed in a closing range of 32.54 – 32.36
(there
have been five lows between 32.38 – 32.36 since the 1:20 p.m. bar on
Thursday),
just below is the 31.65 .382 retracement, with 31.77 being the 1.618
extension
of the last primary up leg from 34.11 – 37.90.
The .382 retracement for the Nasdaq is 1754
and
1.618 extension is 1747. The SMHs are in the .618 retracement zone of 28.19
having closed at 28.95, so they are the primary focus this week, along with
the
many individual semiconductor stocks, so check your levels.
In the SPX and Dow, we are obviously focused
on
the last six days’ lows. Potential intraday retracement short levels for the
QQQ, depending on price action, would be the 240 EMA at 32.66 and 480 EMA at
32.94. For the SPX, it is 1067.50, then 1072. These levels obviously change
dynamically as they are EMAs from the five-minute chart.
Last week’s price action has put the indices
at
very tradable retracement and extension zones, so be ready for some good
two-way
action, especially in light of the current negative terror/oil news
environment.
FYI: The SMH synthetic straddle was taken off
on
Friday for significant gains, and the SPX and QQQ remain in place. If the
SMH
turns up from the .618 retracement zone, this corner will just play the long
side with calls. The SMH is now at its one-year -2.0 standard deviation band
of
29.
Have a good trading day,
Kevin Haggerty