No Long Position Edge Here, But These Are Some Names To Play Intraday

July 9, 2003
Kevin Haggerty

What Tuesday’s Market Action Tells You

Yesterday’s market action was essentially a
continuation of the Slim Jim range for the SPX
(
$SPX.X |
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PowerRating) from the previous
day with a couple of weak headfakes — first to the downside into the 10:00 a.m.
ET time period to 998.73, then just above the high side to 1006.50 on the 11:15
a.m. bar. The index went sideways until 3:30 p.m. when there was a small move to
1008.92, with the SPX closing at 1007.84, +0.3% for the day. The Dow
(
$INDU |
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PowerRating) was almost flat, closing at 9223, plus just 0.07%. NYSE volume was
1.36 billion at 4:00 p.m., and the final total after the run-off was 1.52
billion. The volume ratio was 60, and breadth +414.

The volume ratio of 60 highlights how there was
some underlying strength all day in several sectors as opposed to the overall
market. The XBD was +2.8%, RTH +1.9%, BBH +1.8% and CYC +1.5%. They were green
all day from the opening bell. The
(
SMH |
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PowerRating)s closed at 31.55, +1.5%, but most
of it happened in the last hour, as the SMH traded about 10% less than their
average volume. The
(
SPY |
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PowerRating) volume dropped even lower yesterday to 30.9
million, which is 24% less than average, and about the same as the 30.8 million
on the short trading session on July 3. I don’t like to see rising prices and
declining volume.

In spite of the SPX narrow range yesterday, which
was just 10.2 points, there was better underlying strength in the major sectors,
and especially in the Nasdaq
(
$COMPQ |
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PowerRating), +1.5%. and to a lesser extent, the
(
QQQ |
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PowerRating)s which finished at +1.2%. The volume ratio for the Nasdaq yesterday
was 78, and the low was just 1714, well above the breakout level of 1687, the
top of that 5.4% box and 1.618 Fib extension level mentioned in previous
commentary. The 2.0 Fib extension level is 1790. The spread above the 200-day
EMA is now 18%, from the 1747 high to the 200-day EMA at 1482. The Nasdaq is
+9.2% low-to-high in the past five days and obviously short-term extended.

For Active Traders

Active traders had some opportunity yesterday
with the SPX giving you a Flip Top short entry below 1001.80 on the 9:55 a.m.
bar, which also took the SPX below the previous day’s Slim Jim range. The trade
was aborted as you covered above 1000.16 if you thought it was an RST, or else
you scratched the trade, as the SPX reversed your initial entry level.

For those of you who have attended the seminar or
have the CD and trading manual, you saw this as an RST, which it is by pattern
definition. But you must remember the key filter which states that RSTs are best
at significant highs and lows relative to the time frame you are in. That little
headfake out of the Slim Jim neutral zone which transpired the previous day and
the fact that the 1.0 volatility band was down at 994.87 doesn’t really fulfill
that filter. You can trade the pattern, but you must realize that it is a lower
probability, and in this case, you got away with it. You also had the same RST
sell pattern on the upside headfake to the 1006.12 level on the 11:15 a.m. bar.
Just because you made a few small dollars on a trade doesn’t mean it was a good
trade. There is a tendency for new traders to just follow the lines on the
chart, leaving out the trade logic of when or when not to take the
trade/pattern. This is especially true for some you who see 1,2,3s all day long,
regardless of the significant high or low filter.Â

Today’s Plan

From a daily chart standpoint, all of these
stocks are above the lines, which are their rising moving averages in obvious
uptrends, but most have gotten ahead of themselves in price, which sets up
intraday opportunities in both directions. There are lots of games being played
in these stocks right now, which means opportunity for normal traders, even
though they don’t have the front-running information many hedge funds operate
with, and that includes institutions running ahead of other institutions based
on the information flow they get all day from the major brokerage trading desks.

Needless to say, the major indices are trading
back up to their current one-year 2.0 volatility bands, with the SPX level at
1025, which is also a level with other confluence which I will outline tomorrow,
and the Nasdaq Composite at 1790, which is also the 2.0 Fib extension mentioned
earlier. For the SMH, it is 32.50 – 33.00, and for the QQQ it’s around 34. The
QQQs are also in a confluence right now of three numbers between 32 and 32.75.

By my way of thinking, there is no initial long
position edge when price is at the extended levels, and it is better to wait for
retracements, such as the 962 retracement for the SPX, which we were ready for
in advance.Â

Have a good trading day.

Kevin Haggerty

No Long Position Edge Here, But These Are Some Names To Play Intraday

BUY THE FEAR, SELL THE GREED

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