How to Set Up EMAs on Five-Minute Charts
This week is
triple-witch week, and the last expiration of the year. There will be
volatility. On Friday, we saw the early PPI excitement, as the S&P’s were up
over 12 points by 8:40 a.m. and the December bonds were +13 ticks. We will be
referring to the March bond as we go. At 9:45 a.m., the S&P’s pulled
back to +7, and went negative right after 10:00 a.m. So much for the pre-open
rush on little volume for the S&P’s. The pullback was brief, however, but
just enough for the market makers to take back their early-morning shorts of the
retail by 9:45 a.m.
By 10:30, the S&P 500 cash made the
intraday bottom, bouncing off the 60-day exponential moving average on the
five-minute charts. The 60-minute EMA on a five-minute chart is equivalent to a
20 EMA on the 15-minute chart. You would benefit by setting up your five-minute
charts with a 20 EMA and a 60 EMA which lets you catch the trading action of the
15-minute bar trades, as well as the five-minute trades.Â
For those of you who can use three
MA’s, you should use a 20, a 60, and a 260 EMA on your five-minute chart.
The 260 EMA on a five-minute chart equates to the hourly traders, so you are now
looking at an equivalent EMA for three time
periods.    Â
From 10:30 a.m. we trended up to take
out the early-morning high, and made the high for the day around 3:30, before
giving some back as the S&P 500Â traded down to the 60 EMA and held,
holding at 1417.04, which is a close above the past three days’ high, and also
above its rising 10-, 50-, and 200-day EMA. This sets the table for a try
of more up today. However, the momentum is waning. Look at the breadth and the
up/down volume ratio. We could be getting late in the day, even though they will
carry this through the rest of the year, to get that S&P up over 20
%.  Â
“As we
mentioned Thursday, the best trade might be the March
T-bond.”
As we mentioned Thursday, the best trade
might be the March T-bond. I didn’t mean to confuse you, saying March and giving
you numbers for the December contract. Just a reflex action from having
watched the December contract lows from the last three months. The March contract popped out of a three-bar
narrow range on Friday, on a wide-range bar move, above its swing-point high. It
closed in the top of its range, and above the last 15 closes and 13 highs. It also closed above its 10-, 20-,
and 50-day EMA’s.
All that Greenspan jawboning and the
hyped-up media coverage we got every day about inflation, and rising rates seems
a bit odd when you watch the long-bond action. Also, as Jeff Cooper pointed out
to me the other day, the adjusted money supply has been increasing at a swift
pace. What Mr. G. says and what he does certainly seems
different.  Â
Last week was Internet week going away,
with the Internets finishing up well over 14% as a group, as both the Dow and
the S&P 500Â finished lower for the week ending Friday. Portfolio
managers of all types are scrambling to play the momentum stocks so that their
performance might beat the S&P 500. Good for them, I hope they do.
It’s good for us.   Â
Sixty percent to 65% of the NasdaqÂ
move from October is due to approximately only 15 to 20 stocks. That’s an
amazing figure. With only 27% of NYSE stocks above their 200-day MA, it
makes your job a lot easier to select stocks. Remember, the bulls live above the
200-day moving average and the bears live below it. Select your trades
accordingly.
Program
Trading NumbersBuySellFair
Value21.0018.8020.00
Pattern Setups
:
Microsoft [MSFT>MSFT], Cisco
[CSCO>CSCO], Motorola [MOT>MOT], Intuit [INTU>INTU], Network Appliance
[NTAP>NTAP], Comverse [CMVT>CMVT], Redback [RBAK>RBAK], Emulex
[EMLX>EMLX], and At Home
[ATHM>ATHM].    Â
A good bottom-fishing position play,
either through options strategies or just flat-out owning the stock, is
Louisiana Pacific [LPX>LPX]. There was obvious accumulation in this stock on
Nov. 17, 18, and 19, and also on Dec. 1, 2, 3, 6, 7. There is somebody or
someone or somebody, as they say, accumulating a lot of that stock.
Have a good trading
day.