Monday’s Surprise

• October 23, 2001
• Kevin Haggerty

Monday’s
surprise was some price persistence on
less-than-average volume for both the NYSE and Nasdaq as sellers backed off and
the buyers had to reach to buy a stock. The Dow ended +1.9%, the SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) +1.5%, and NDX 100
(
$NDX.X |
Quote |
Chart |
News |
PowerRating) +2.6%. The NYSE traded just
over 90% of its average volume at 1.098 billion and the Nasdaq 84% of its
average volume, which was the lightest of the past five days. The NYSE volume
ratio was 70 as it improved in the afternoon from just above neutral. Breadth
was positive at +567. 

There were gains across
the board, except for the retail sector
(
$RLX.X |
Quote |
Chart |
News |
PowerRating). The
(
$SOX.X |
Quote |
Chart |
News |
PowerRating) was
+5.5% and the
(
$BTK.X |
Quote |
Chart |
News |
PowerRating) +3.8%. The basics, led by the
(
$CEX.X |
Quote |
Chart |
News |
PowerRating) and
(
$FPP.X |
Quote |
Chart |
News |
PowerRating) gained, as did the financials, led by the
(
$XBD.X |
Quote |
Chart |
News |
PowerRating) +3.5%
and
(
$IUX.X |
Quote |
Chart |
News |
PowerRating) +3.7%. The banks also tagged along at +2.7%. The oil service
index
(
$OSX.X |
Quote |
Chart |
News |
PowerRating) advanced +3.3% and is now sitting at a tight nine-bar
pattern right on the 50-day EMA of 76.72. It closed at 76.47. You play any
breakout with the
(
OIH |
Quote |
Chart |
News |
PowerRating) Holdrs, which closed at 54.54 vs. its 50-day EMA of
54.52. The
(
$XBD.X |
Quote |
Chart |
News |
PowerRating) has advanced 45% in 22 days and is approaching one of
its down trendlines, in addition to its 200-day EMA of 477. The index closed at
452. There will be short opportunities as these brokers pull back for air.

The semis have already
retraced 50% of the 38% rally. The
(
SMH |
Quote |
Chart |
News |
PowerRating)s bounced off of the 32.76 level
last Friday, closing at 34. Will it be further advancement short-term to the
.618 level of 39.90, with the .786 at 43.32, or else a 1 2 3 lower top below the
recent 38.25 highs? We don’t know, but yesterday’s volume in the SMHs wasn’t too
bad, and we got top-of-the-range closes on decent volume in many of the key
semis, so we must be ready for continuation long entries today. On a retracement
basis to the Aug. 27 high of 47.68, the SMHs have some more upside room, whereas
the SPX and NDX have already hit their .618 retracement levels. 

Regarding the averages,
the sequence I favor is when to sell them for a retest of the 945 low, not to
buy up into the moving average or retracement levels. I like that because your
stops can be tight, and the reward to risk is excellent on a retest vs. a 1% to
1.5% stop-loss above on any shorts in the
(
SPY |
Quote |
Chart |
News |
PowerRating)s,
(
DIA |
Quote |
Chart |
News |
PowerRating)s or
(
QQQ |
Quote |
Chart |
News |
PowerRating)s.
We have already jumped in on the buy side at outstanding reward-to-risk levels
when most were thinking end of the world, so why should we decide to buy price
strength now until the market can establish the sequence of higher lows and
higher highs? It hasn’t done that yet, or even broken the near-term down
trendline. See your daily chart of the QQQ and SPX from the May highs.

If the futures remain
green this morning, I see the first hurdle for the SPX, which closed at 1090, to
be the 50-day EMA at 1098.30 along with the .786 retracement to the 1107 high of
1096.30. Should this rally persist to higher levels, there is another formidable
obstacle from 1130 to 1135 for the SPX. The .50 retracement to the 1316 high is
1130, 1133 is the 89-day Fib EMA, and 1135 is .786 retracement for the 1187
high. Let the buyer beware.

Stocks
Today

Semis today: focus on
(
BRCM |
Quote |
Chart |
News |
PowerRating),
(
ISIL |
Quote |
Chart |
News |
PowerRating),
(
ELNT |
Quote |
Chart |
News |
PowerRating),
(
MCHP |
Quote |
Chart |
News |
PowerRating),
(
MU |
Quote |
Chart |
News |
PowerRating),
(
NVLS |
Quote |
Chart |
News |
PowerRating),
(
KLAC |
Quote |
Chart |
News |
PowerRating),
(
AMAT |
Quote |
Chart |
News |
PowerRating),
(
TER |
Quote |
Chart |
News |
PowerRating), which might play catch up off a double
bottom, and
(
ADI |
Quote |
Chart |
News |
PowerRating).

In the energies, if they
come for them today, from the tight narrow-range pattern, even though there was
light volume yesterday, look at
(
SLB |
Quote |
Chart |
News |
PowerRating),
(
NBR |
Quote |
Chart |
News |
PowerRating),
(
RIG |
Quote |
Chart |
News |
PowerRating),
(
BJS |
Quote |
Chart |
News |
PowerRating) and
the
(
OIH |
Quote |
Chart |
News |
PowerRating) holdrs. 

Other stocks,
(
CAH |
Quote |
Chart |
News |
PowerRating),
(
SWK |
Quote |
Chart |
News |
PowerRating),
(
MMM |
Quote |
Chart |
News |
PowerRating),
(
DOW |
Quote |
Chart |
News |
PowerRating),
(
VRTS |
Quote |
Chart |
News |
PowerRating),
(
BGEN |
Quote |
Chart |
News |
PowerRating),
(
IDPH |
Quote |
Chart |
News |
PowerRating),
(
ICOS |
Quote |
Chart |
News |
PowerRating), the
(
BBH |
Quote |
Chart |
News |
PowerRating)s, they closed at 124.41 and might try to run to the
200-day at 129, and also
(
AHP |
Quote |
Chart |
News |
PowerRating) and
(
MCK |
Quote |
Chart |
News |
PowerRating).

On the short side, any
kind of strong rally, I mentioned the levels the other day I’d be short,
especially the
(
DIA |
Quote |
Chart |
News |
PowerRating)s and the
(
SPY |
Quote |
Chart |
News |
PowerRating)s into the rally.

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

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