Here’s Your Homework For The Weekend

October 31, 2003
Kevin Haggerty

What Thursday’s Action Tells You

The Generals are holding the levels for the past
three days, as the SPX has closed within 1.21 points for three days, the Nasdaq
within just 4 points, and the QQQs almost identical with closes of 35.38, 35.32,
and yesterday at 35.37. Daytraders would be out of business without the travel
range during the day.

	Monday 10/27	Tuesday 10/28	Wednesday 10/29	Thursday 10/30	Friday 10/31	Net
Index
SPX
High	1037.75	1046.79	1049.83	1052.82
Low	1028.90	1031.13	1043.35	1043.82
Close	1031.13	1046.79	1048.11	1046.94
%	+.2	+1.5	+0.1	-0.1
Range	8.9	15.7	6.5	9
% Range	25	100	73	35
INDU	9608	9748	9775	9787
%	+0.3	+1.5	+0.3	+0.1
NASDAQ	1883	1932	1937	1933
%	+.9	+2.6	+0.2	-0.2
QQQ	34.25	35.38	35.32	35.39
%	+0.2	+3.4	-0.1	+0.1
NYSE
T. VOL	1.35	1.62	1.52	1.62
U. VOL	861	1.23	988	799
D. VOL	484	390	513	803
VR	64	76	66	50
4 MA	43	56	60	64
5 RSI	39	67	67	64
ADV	2168	2229	2065	1647
DEC	1050	1034	1179	1634
A-D	+1118	+1195	+886	+13
4 MA	-186	+422	+678	+803
SECTORS
SMH	+1.0	+5.5	+0.9	+0.9
BKX	-0.4	+1.0	+0.5	+0.3
XBD	+1.5	+2.6	+0.5	-0.2
RTH	+1.0	+2.3	+0.2	-0.4
CYC	+0.7	+2.0	+1.0	+1.2
PPH	0	+1.0	-0.7	-1.0
OIH	-0.4	+0.6	-1.4	+0.5
BBH	-0.9	+2.0	-1.3	-0.2
TLT	-0.2	+0.5	-0.9	-0.4
XAU	+0.5	-0.7	+1.8	-1.8

table legend

The holding action is further evidenced as you
look at the table and you see the volume ratio was dead neutral yesterday at 50,
with the four-day moving average now at 64. Breadth was neutral at just +13,
while the four-day moving average is now up to +803 and short-term overbought,
along with the volume ratio. It was a single-digit range for the SPX at 9 points
for the third day this week, which is really a tug-of-war between buyers and
sellers. Anything less than a 1.0% move by the major indices is just noise.

For Active Traders

The SPX made its first run at the 1053.79 rally
high, and the more it bumps up against that resistance, the weaker it gets, so
if they put some new money to work during the first few days of November, they
could take it out before the next retracement down, but of course, that can’t
start until there is at least a close below the low of the high day, and then
you can decide how to play a short-term move. That is an important discipline
that keeps you from making subjective market decisions. The aggressive traders
would play that by taking an intraday short setup trading below that low and
only keep it in position overnight if it ends the day with a profit cushion. By
doing that, you can avoid the slippage if it is a wide-range-bar day down.

I have included the five-minute charts of the SPX
and SMH which highlight the trades taken yesterday when price resumed the
direction of the open, which it does about 60% of the time. The SPX took out the
1044 low to 1043.82, which was the fifth swing point of expanding volatility. I
labeled the other four to the left of 1043.82. That entry was above 1045 and
from there, made another run up to challenge the 1053.79 rally high. You would
have traded either the futures or SPY, neither of which made the new low as did
the SPX, but qualifies because the SPX did. (There isn’t any detailed RST lesson
for those of you that have e-mailed me. It is only taught in the seminar
material and that value will remain there.)

The SMH chart shows the gap opening and the
return into the closing range Slim Jim from the previous day, hitting 41.58,
advancing out of the range, and then a second trip back to 41.54, and out again
for a second entry that ran up to 42.35 before fading to close at 41.88, +0.9%
on the day. If you didn’t take the first out-of-the-range entry, I marked the
next possible reversal entry, which was above 41.75. The second reversal above
41.64 out of the range was confirmed by the 8,3,3 slow stochastic re-crossing 20
to the upside.

There were three entry decisions before real
success, and you would have been correct on all of them, but you had to stay
with it. Knowing the odds were somewhat in your favor that price would resume
the direction of the open as the Generals pushed price, and that’s what happened
until that volume spike when price hit 42.35 on the 2:30 p.m. bar, ending the
move.

The INTC and QQQ short-term positions are flat
after yesterday, and some of that profit was rolled into a few SMH puts to start
and more to be added if they rally them today and/or early next week. The SMHs
are up 12.2% low-to-high the last six days into the October mark-up, and they
will take a rest shortly.

For Today

I don’t have any real expectations for a big
travel range today in either direction, and with month end and the witch coming
on her broom tonight. Regulators frown on those last-day funny moves. Do some
work this weekend and find those setups both long and short that you can play
next week depending on whether or not the Generals put some new money to work or
else back away after their excellent job of securing higher prices for the
month-end/year-end for some.

I will explain the “Net” column on the table in
Monday’s commentary, and it will be added to the table legend for future
reference.

Have a good trading day,

Kevin Haggerty