Let Them Shake The Tree First…Here’s Why
Friday
was a change-in-direction day for the major indices.
This simply means for the SPX there was a
higher high and low with a close in the top of the range and also above the
previous three closes and two highs. It was also a range expansion more than the
previous six days. NYSE volume was 1.35 billion, with a volume ratio of 78, and
breadth +835. Friday’s rally came off a volume ratio with a three-day moving
average of 28 and a three-day moving average of breadth of -728, so it was
short-term oversold. In addition to that, it came off three straight down days.
In order for the
direction to change again to the downside for the SPX, it must trade and close
below Friday’s 815.03 low. Also, Friday’s close establishes Thursday’s 806.29
low as the most recent swing point low. This is just the daily drill of
identifying short-term buying and selling pressure, which may or may not begin a
change in the intermediate trend for the major indices.
The intraday trends are
now up, and that means you are ready to play any intraday pullbacks relative to
Thursday and Friday’s combined range. The percentage gains for the major indices
on Friday were large, with the SPX
(
$SPX.X |
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Chart |
News |
PowerRating) +2.1%, the Dow
(
$INDU |
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PowerRating)
+2.05%, the Nasdaq
(
$COMPQ |
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Chart |
News |
PowerRating) +2.6%, and the NDX 100
(
$NDX.X |
Quote |
Chart |
News |
PowerRating) +3.2%.
The
(
SMH |
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Chart |
News |
PowerRating)s gained 5.6% and is now +7.9% low to high in two days. Thanks for
the recent badmouthing by UBS once again setting up another good reflex bounce
for the short-term trader.
For today, I prefer the
intraday pullback trade or a second entry continuation trade
above Friday’s highs rather than play the first break above Friday’s highs,
especially in early trading.
On Friday, the best
trends were all pullbacks. The first two for the SPX were pullbacks to the
20-period EMA on the five-minute chart, and the afternoon moonshot was from a
.618 retracement to Thursday’s 806.29 low, with entry above 816.57 from a Kings
& Queens reversal pattern. The immediate overhead resistance for the SPX is the
recent eight-day trading range lower boundary of 840, which is also the .618
retracement to the October low. Any early rally today above that, and then a
reversal below 840 might be a decent intraday short.
Because of the storm over
the long weekend, the NYSE floor will be short personnel, and you know from
experience that means more volatility, and programs can be more of a factor in
the acceleration of direction. Don’t get duped into any early breakout trades,
and let them shake the tree first, and keep scrolling for the pullback setups.
The futures are small green as I do this, but if that changes to more upside,
then we should look for any upside Trap Doors, and there could be some good ones
in many stocks where the secondary NYSE specialist is on the book due to
commuting problems. Friday is also an option expiration, so we expect some
volatility this week.
Friday’s SPX close was
above the 1.0 standard deviation band, and that is the first hurdle for any
reversal of the current short-term downtrend.
Have a good trading day.
Five-minute chart of
Friday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Friday’s NYSE TICKS