How Will You Play It, And What’s Your Plan?
Yesterday was a windfall trend day
with trade-through entry, which is a
trader’s dream. NYSE volume picked up to 1.4 billion, a volume ratio of 81 for a
three-day moving average of 74, but that has to be looked at in conjunction with
the first week of new money being put to work and maybe getting ahead of Bush’s
economic initiatives, of which some will be passed in some form because the
Republicans control both the House and Congress. The SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) rose
2.2%, the Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) 2.0%, the NDX
(
$NDX.X |
Quote |
Chart |
News |
PowerRating) 2.9%, and the Nasdaq
2.5%.
The major indices and the
(
SMH |
Quote |
Chart |
News |
PowerRating)s all have had four-week pullbacks and closed in the top of their
weekly ranges, so I am sure you were all ready for any continuation trades above
last week’s highs. We were lucky to get an in-line opening, which is rare these
days, so that enabled us to take the trade-through entry from the
(
SPY |
Quote |
Chart |
News |
PowerRating) Slim
Jim on the 60-minute chart mentioned in yesterday’s text. The SMHs continued
their rally from the .618 zone with a +5.2% gain and are now +16.5% in three
days. They keep bad mouthing the semis, and I keep buying the oversold levels
from key inflection points. The banks and brokers both advanced better than 3.0%
and some of the other tech proxies also outperformed the major indices.
There were four Slim Jims
yesterday for the SPY, which I haven’t seen in a long while. The first was the
most powerful, from the nine-bar closing-range Slim Jim on the 60-minute chart.
I look for a minimum of seven to eight bars on a five-minute chart, so it stands
to reason that it is a much stronger pattern on the higher time frames. The
second was above 92.60 and the third above 92.80. The fourth was above 93.10,
but it was an end run after coming out the bottom first, then reversing and
trading out the top. That fourth one wasn’t taken in this corner because the SPY
had entered the .618 retracement zone to the Dec. 2 96.05 top.
The SPX traded up to
931.77, with the .707 retracement at 929.42 and the .786 at 936.30. The Dow hit
8800, with the .707 at 8809 and .786 at 8872. The SMH, which I said had the most
room last week because it had retraced to the .618 zone, hit 25.65 yesterday vs.
the .38 retracement at 25.44 and .50 up at 26.50. The
(
QQQ |
Quote |
Chart |
News |
PowerRating)s had an intraday
high of 26.59, just above the .50 retracement of 26.50, with the .618 at 27.56.
Whether it’s going to be
a 1,2,3 top of lower, same, or higher proportions, we don’t know because there’s
been no reversal pattern yet, and yesterday was a wide-range bar up with a close
in the top of the range and above the previous 14 days’ highs for the QQQs. The
SPYs closed above the previous 19 days’ highs, so there’s nothing to do on the
short side until there is a reversal pattern entry, which could coincide with
the Jan 13 – 18 key time period. Having said that, I will still take any good
intraday short setup because we are in the retracement zone.
The strategy now —
because we are close to a continuation level, which would be above 965 in the
SPX, or a 1,2,3 top failure followed by more of a retracement to the 769 October
low — is to look for stocks with patterns that are coiled to make a move either
way. I like to buy straddles in these kinds of stocks and then adjust the trade
based on the direction of the breakout. Some stocks that fit this category are
(
TARO |
Quote |
Chart |
News |
PowerRating),
(
SIAL |
Quote |
Chart |
News |
PowerRating),
(
COH |
Quote |
Chart |
News |
PowerRating),
(
TJX |
Quote |
Chart |
News |
PowerRating),
(
BJS |
Quote |
Chart |
News |
PowerRating),
(
BHI |
Quote |
Chart |
News |
PowerRating),
(
ATH |
Quote |
Chart |
News |
PowerRating),
(
AVP |
Quote |
Chart |
News |
PowerRating) and
(
KMB |
Quote |
Chart |
News |
PowerRating). There are other
stocks, but these are just a few of the ones that stand out. These stocks are
either in triangles or boxes where volatility is narrowed and will be resolved
soon. You can straddle some of them, range trade, or just play the breakouts
depending on your style. I am just trying to get you to think because the market
is at the high end of the zone, and that will be resolved with good volatility.
How will you play it, and what’s your plan? Remember, preparation in advance is
the key to your success. For me, that means there must be a strategy in place
prior to this Iraq situation.
Have a good trading day.
Five-minute chart of
Monday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Monday’s NYSE TICKS