Manage Trades To Adjust For Volatility
The major indices
finished positive on the week, led by the QQQQ, +2.5%, with Intel,
+4.1% over the last five days. The Nasdaq was +2.4% to 1967, Dow +1.5% to 10,345
and SPX +1.2% to 1171.34, which is 11 points above its 200-day EMA.. The market
action on Friday saw the SPY and DIA trade down to new intraday lows from 3:50
PM into the close. The SPY closed at 117.09 after the early gap-up opening and
intraday high of 117.97 on the opening bar. The immediate resistance this week
is 118 as price stalled at that level on every attempt for the past three
trading days. The two Fib levels in play above 118 are at 118.40 (.50
retracement) and 119.54 (.618 retracement). The DIA closed at 103.43, right at
the 12- month SMA of 103.40. After three days of resistance at 104 -104.10,
should the DIA go green on Monday, the initial upside focus is the 200-day EMA
at 103.71. The 104.10 – 103 range will be broken this week.
Friday’s NYSE volume was the low of the week at
1.36 billion shares with the volume ratio neutral at 52 and breadth the same at
-87. The SPX was -0.1% on Friday and the Dow up just 5 points. The QQQQ and
Nasdaq were both +0.3%. The XBD (brokers) led the primary sectors, +1.0%, and
BKX (banks) were the downside leaders at -1%. On the week, the semis led, with
the SMH, +3.9%, followed by the RTH (retail), +3.4%, and the OIH, +3%. The only
red sector on the week was the BKX at -0.2%. FYI, there is a retail sales number
this Thursday.
The Dow Transportation Index ($TRAN)–which had
sold off -13.9% from 3890 to 3348 on some soft economic news–actually led all
of the major indices last week at +3.1%. The TRAN, CYC and XLB will give you a
very good indication of the Generals’ economic perception if the longer-term
moving averages don’t hold after this current rally. There has been much more
random price movement in the major indices during this past month due to the
overreaction to individual economic reports. The reality is that it is a
composite of these economic indicators that has the most meaning to
signify any downturn and recently we have seen individual reports of strength
and weakness on an alternating basis, which gives many of the weasel hedge funds
the opportunity to game the futures and certain stocks. This leads to erratic
and shortened moves for traders, so it is necessary to manage trades by
adjusting to the volatility. This might mean reducing position size and
increasing stop levels or maybe just taking a 50% entry on the initial trade and
only increasing position size if the trade starts to trend intraday.
This week there is weekly initial unemployment
claims, retails sales and the Michigan Consumer Sentiment number on Friday. All
three of these indicators in this current skittish market are ripe to be gamed
intraday if they are unexpected in any way. The good daytrader will anticipate
all of the key levels/zone and be ready to play any overreaction that gets
extended to the various key levels, especially those with a sequence of the
“primary tools” (seminar
material). The key levels for the SPY, DIA and QQQQ were outlined in the
last couple of commentaries.
Have a good trading day,
Kevin Haggerty
P.S. I will be
referring to some charts here:
www.thechartstore.com in the future.
