If New Money Gets Put To Work, Look For This
What Friday’s Action Tells You
The last two days of the month were both up for
the major indices as the Generals closed them up for the sixth month in
succession. NYSE volume on Friday was the lightest of the week at 943 million,
with the SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) +0.5%, the Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) +0.4%, Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating) +0.6%, and
(
QQQ |
Quote |
Chart |
News |
PowerRating)s +0.7%. The volume ratio was 74 and is
short-term overbought with a four-day moving average of 69, and breadth was
+874. The SPX was +1.5% for the week, while the Nasdaq and QQQ were +2.6% and
+2.7%.
We start the week with the obvious, which is
everyone anticipating the SPX to follow the Dow and Nasdaq to new rally highs,
breaking above the 1015 upper trading range boundary. All of the major indices
are above their rising 8-, 20-, 50- and 200-day EMAs, so nothing bad happens
until that changes at some point. The rising 200-day and 12-month EMAs are both
at about the 950 level, so longer-term less-aggressive index proxy position
holders are just watching the action, ignoring the daily noise, and enjoying the
ride, as they should be. Aggressive position holders should be implementing some
protection strategies after the SPX breaks out of the trading range into the
September/October period, not to mention one terrorist attack away from a
freefall to the downside.
In the major sectors, it’s all about the
semiconductors that have made a good reflex up from the lower end of the 35 to
36 retracement zone, where we have looked for a pullback opportunity after the
initial attempt at the confluence zone from 37.57 to 38.19, which is the .23
retracement to 105.75 (see the Aug. 25 commentary for the chart). The
(
SMH |
Quote |
Chart |
News |
PowerRating)
closed at 37.39 on Friday, +0.5% on the day and +3.1% for the week, following
+11.1% the previous week. SMH volume was very light at 4.8 million shares on
Thursday and then 3.9 million shares on Friday. They remain as the primary
trading vehicle, along with many of the individual semi stocks, but the SMHs are
+119% from their October bear market lows and NOT an investment vehicle right
now in this corner. Playing the SMHs on pullbacks rather than buying breakouts
remains the higher percentage short-term trading strategy. The short- and
long-term momentum indicators for the SMHs are well up into the overbought zone.
For Active Traders
If you traded Friday, there were some quick early
downs, but they were short-lived, as there were opening reversal trades in the
(
DIA |
Quote |
Chart |
News |
PowerRating)s above 93.82 and
(
SPY |
Quote |
Chart |
News |
PowerRating) above 100.64, or ESU above 1000.50. The
afternoon rally started just before 1:00 p.m. ET after a retracement to the 20
and 60 EMAs on the five-minute chart, then re-crossed both to the upside,
rallying into the close. The E-mini re-crossed both around 1001.50, rallying up
to 1009.25, closing at 1008.25.
Today’s Action
For today, the early morning futures are green at
7:00 a.m. ET, as the Dow is +36, S&P 500 futures +4.40, Nasdaq +8, so if that
holds, there could be an early run at the 1015 level for the SPX. The SPY closed
at 101.44 on Friday, just below the June 17 trading range intraday high of
102.18 and the 101.66 closing high. That magnet will get taken out following the
Nasdaq and Dow lead. A breakout of the SPX 1015 to 960 trading range box has a
price objective of 1070, with the .382 retracement to 1553 from 769 at 1068 and
the 1.618 Fib extension of the 954 to 769 leg at 1056. This current SPX cycle
went sideways, with two 5.0% downside moves to the 960 longer-term
head-and-shoulder neckline. The down cycle was expected into early August, and
the most recent low was 960.84 on Aug. 6, and then the current rally to a 1008
close on Friday, which is the fourth 5.0% move since June 17 — two up and two
down. The next short-term cycle down is into the Sept. 10 – 15 time period and
could certainly come from higher levels if some new money gets put to work by
the Generals during these first few trading days of September.
Have a good trading day,
Kevin Haggerty
