Negative Announced News Good For Focus List Traders

• May 6, 2004
• Kevin Haggerty

What Wednesday’s Action Tells
You

The SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) advanced slightly for
the
third consecutive day, and the market action was weak. On Monday and
Tuesday,
the SPX closed +0.9% and +0.2% with the 4 MA of the volume ratio at 65 and
63,
yet breadth was only +685 and +506. This was a reflex from 1107 and Friday’s
4
MA of the volume ratio at 29 and breadth -872. I said I didn’t like Monday
or
Tuesday’s action because the volume was concentrated in fewer big cap
stocks,
which kept the averages up, but broad participation was minimal which is
never
favorable.

Yesterday’s market action was the weakest of
the
three days, with the SPX closing at 1121.58, +0.2%, with a volume ratio of
53,
yet breadth was down again at -9. The 4 MA of breadth is now just +157. The
5
RSI has remained below 50 for all three days. The SPX had an intraday high
of
1125.07 and halted just below the initial resistance at the 20- and 50-day
EMAs.
The Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) went small red, closing at 10,311, – 6 points, while
the
Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating) at 1957 was +0.4% and the
(
QQQ |
Quote |
Chart |
News |
PowerRating) closed at 35.53,
+0.8%. NYSE volume was 1.47 billion, the least of the past five days. This
market action by itself indicates that the 1078 – 1065 SPX zone is in play
until
shown otherwise.

Â	Thursday 4/29	Friday 4/30	Monday 5/3	Tuesday 5/4	Wednesday 5/5
IndexÂ
SPX Â
HighÂ	1128.61	1119.26	1118.72	1127.74	1125.07
LowÂ	1108.07	1107.23	1107.30	1112.89	1117.86
CloseÂ	1113.88	1107.30	1117.56	1119.51	1121.58
%Â	-0.8	-0.6	+0.9	+0.2	+0.2
RangeÂ	20.5	12.0	11.4	14.8	7.2
% RangeÂ	28	0	90	45	52
INDUÂ	10272	10226	10314	10317	10311
%Â	-0.7	-0.5	+0.9	+.03	-.06
Nasdaq Â	1959	1920	1939	1950	1957
%Â	-1.5	-2.0	+1.0	+0.6	+0.4
QQQÂ	35.64	34.77	35.10	35.25	35.53
%Â	-1.5	-2.4	+1.0	+0.4	+0.8
NYSEÂ
T. VOLÂ	1.86	1.63	1.57	1.67	1.47
U. VOLÂ	405	468	1.01	1.04	811
D. VOLÂ	1.4	1.14	537	603	635
VRÂ	22	29	65	63	56
4 MAÂ	30	29	32	45	53
5 RSIÂ	27	22	42	45	49
ADVÂ	869	1354	1997	1904	1638
DECÂ	2444	1909	1312	1398	1647
A-DÂ	-1575	-555	+685	+506	-9
4 MAÂ	-949	-872	-796	-235	+157
SECTORSÂ
SMHÂ	-2.6	-1.7	-0.4	+1.7	+0.4
BKXÂ	-0.3	-.07	+0.8	+0.6	+.06
XBDÂ	-1.4	-1.4	+0.8	+0.8	-0.5
RTHÂ	-1.0	-0.6	+0.6	-0.5	+0.3
CYCÂ	-1.9	-0.5	+0.7	+0.7	-.05
PPHÂ	-0.7	+.03	+1.3	+0.4	+0.3
OIHÂ	-3.4	-0.2	+2.3	-0.9	-1.4
BBHÂ	-1.6	-0.3	+0.4	-1.1	+1.9
TLTÂ	-0.5	+0.4	+0.1	-0.7	-0.3
XAUÂ	+1.0	-0.2	+0.	+5.3	-2.2

^next^

For Active
Traders

In the major indices, the best opportunities
were
the first-hour strategies for the
(
SPY |
Quote |
Chart |
News |
PowerRating)/futures. There was a Trap Door
with
entry above 112.27 with entry on the 9:50 a.m. ET bar. This followed the gap
opening down from Friday’s 112.06 close to yesterday’s 112.42 open. This was
also a gap pullback to the Tuesday closing-bar low of 112.05. This trade ran
to
112.89. There was a retracement to the 240 EMA just before 12:40 p.m. as the
SPY
ranged between 112.50 – 112.26, then broke out and ran to 112.96, closing at
112.78.

There were some excellent trades from the
focus
list yesterday, if you were scrolling for them as you should each day. The
negative analyst’s report on the drillers set the table for us. Thank you
very
much. This created the emotional openings in the drillers, while the other
energies also got marked down in the opening time period.

For example,
(
SII |
Quote |
Chart |
News |
PowerRating) opened down -5.0% from
the
previous 55.39 close to 52.60. It ticked to 52.45 on the next bar and then
made
the contra move to 53.86, +2.7%. It then resumed the direction of the down
opening. Those of you who have the seminar material know the “90 –
60″ rule, so
no surprise there. The next SII setup was even better as it traded down to
51.67, which was -8.2% from Tuesday’s high and -6.7% from the opening. The
extended move was resolved to the upside as SII re-crossed the 50-day EMA of
51.77 and traded up to 53.60, closing at 53.05. Net net, the negative
announced
news was good news for the daytrader, as it is most of the time.

If you are comfortable with sequence- and
volatility band-type trades, SII was an easy trade selection. I have
included
three other examples which were excellent trades, but didn’t have the
initial
volatility as SII did. The first is another energy stock,
(
COP |
Quote |
Chart |
News |
PowerRating), which
was a
Trap Door entry similar to the SPY trade, and then two contracted volatility
continuation entries followed above 74 and 74.25.

The next chart is
(
ZMH |
Quote |
Chart |
News |
PowerRating) which was simply
a
breakout above the previous day’s high of 82.50, carrying to 84.05. This was
also a continuation of the daily chart flag breakout after a retracement to
the
rising 20-day EMA.

The third trade is another energy stock,
(
CVX |
Quote |
Chart |
News |
PowerRating), which gave you the
Trap Door
entry above 92.78, then a 1,2,3
higher
bottom entry above 92.89, running to 94.65. There were others from the focus
list like
(
DGX |
Quote |
Chart |
News |
PowerRating), which gave you a 1,2,3 higher bottom entry above 85.08
which ran to 86.80, closing at 86.42 and a new rally high close. Good daily
chart
setups and stock selection make the best daytrades. I will discuss this in
depth
at the seminar June 25 – 27 in New York.

Today’s
Action

The weak market action has carried over to
early
red futures this morning, with the Dow -57, SPX -6 and Nasdaq -11. Your
first
focus zone for the SPX and first-hour strategies are 1116.97, 1114.76 and
1112.33, which are extensions of the last leg up yesterday. Today the 1.0
SPX
volatility band is 1113.35 and the 2.0 volatility band is down at 1105. You
can
calculate the 1.28 and 1.5 bands and beyond the 2.0 band if needed. The
early
red futures put us on the long side of the first-hour strategies, but it
wouldn’t surprise me if there was sideways action after that due to the
media
jobs circus on Friday.

Have a good trading day,

Kevin Haggerty