Options Expiration — Don’t Be A Hero

  • March 19, 2004
  • Kevin Haggerty

What Thursday’s Action Tells
You

The SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) was +1.7% for the
previous four days and came out of yesterday’s neutral day still up +1.6%
for
the past five days. The index closed at 1122.31, -0.1%, with the Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) off only 4 points to 10,296. The Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating) was
also
+1.7% into yesterday and closed at 1962, -0.7%, leaving it +1.0% over the
five
days. The
(
QQQ |
Quote |
Chart |
News |
PowerRating)s have been trading in the 35.62 – 34.63 range for the
past
five days, and if you took the long into the confluence zone outlined in
previous commentary below 34.80, your stop is less than 2.0% to below the
200-day EMA, now 34.21. The QQQs closed at 35.33, 0.5%, and +1.5% for the
past
five days.

The 4 MA of the volume ratio is absolutely
neutral at 51 after a 43 day yesterday, as is the breadth 4 MA ratio at just
+98, following yesterday’s -362 day. Of course, the market is coming off the
extreme 4 MA of the volume ratio of 18 on 03/11, with the breadth -1136 as
the
SPX hit the 1103 – 1105 zone after a four-day decline from 1163. The SPX is
ranging high-to-low for the past six days between 1125.76 and 1102.61, which
is
just a 2.0% range which will be resolved for sure following this week’s
option
expiration.

In the sectors, the
(
OIH |
Quote |
Chart |
News |
PowerRating) was +0.8%
yesterday
and +4.0% the past two days, as the focus list energy stocks from
Wednesday’s
commentary were a win-win for us, led by
(
BJS |
Quote |
Chart |
News |
PowerRating), +6.5% in the two days
and
+4.6% with good entry on Wednesday. They were just retracement setups in a
strong trend to the 50-day EMA for the OIH and 20-day EMA for stocks like
BJS
and
(
SLB |
Quote |
Chart |
News |
PowerRating). Nothing cerebral about it. The stops were close to entry and
the
risk/reward good.

The semis have been playing green light/red light,
with the
(
SMH |
Quote |
Chart |
News |
PowerRating)s going +2.1%, -2.6%, +1.1%, +1.6% and -1.4% yesterday. High-to-low,
they went +3.8% from 38.34 on Tuesday, right in the confluence zone, with the
200-day EMA right below at 38 and an RST entry above 38.44, which ran to 39.80
yesterday, where we got an RST sell entry.












































































































































































































































































































size=2>  Friday

3/12

 Monday

3/15

 Tuesday

3/16

 Wednesday

3/17

 Thursday

3/18
color=#0000ff>Index          
color=#0000ff>SPX          
color=#0000ff>High 1120.63 1120.57 1113.82 1125.76 1125.50
color=#0000ff>Low 1106.78 1103.36 1102.61 1110.70 1113.25
color=#0000ff>Close 1120.60 1104.43 1110.70 1123.78 1122.31
color=#0000ff>% +1.3 -1.4 +0.6 +1.2 -0.1
color=#0000ff>Range 13.9 17.1 11.2 15.1 12.2
color=#0000ff>% Range 99 6 72 87 74
color=#0000ff>INDU 10240 10103 10185 10300 10296
color=#0000ff>% +1.1 -1.3 +0.8 +1.1 -.04
color=#0000ff>Nasdaq 1985 1939 1943 1977 1962
color=#0000ff>% +2.1 -2.3 +0.2 +1.7 -0.7
color=#0000ff>QQQ 35.52 34.90 34.95 35.52 35.33
color=#0000ff>% +1.9 -1.7 +0.2 +1.6 -0.5
color=#0000ff>NYSE          
color=#0000ff>T. VOL 1.39 1.53 1.41 1.50 1.36
color=#0000ff>U. VOL 1.20 168 913 1.20 578
color=#0000ff>D. VOL 177 1.35 478 251 760
color=#0000ff>VR 87 11 66 83 43
color=#0000ff>4 MA 33 31 44 62 51
color=#0000ff>5 RSI 35 25 34 50 48
color=#0000ff>ADV 2442 850 1933 2553 1462
color=#0000ff>DEC 877 2440 1360 784 1824
color=#0000ff>A-D +1565 -1590 +573 +1769 -362
color=#0000ff>4 MA -617 -806 -256 +579 +98
color=#0000ff>SECTORS          
color=#0000ff>SMH +2.1 -2.6 +1.1 +1.6 -1.4
color=#0000ff>BKX +1.2 -1.0 +1.2 +1.2 -.09
color=#0000ff>XBD +2.0 -2.4 +0.4 +2.1 -0.7
color=#0000ff>RTH +0.9 -1.4 +0.2 +1.3 +0.5
color=#0000ff>CYC +2.0 -1.9 +1.0 +2.0 -0.3
color=#0000ff>PPH +.03 -1.0 +1.3 -0.7 -0.1
color=#0000ff>OIH +2.0 +0.7 -1.0 +3.2 +0.8
color=#0000ff>BBH +1.5 -2.5 -0.8 +2.6 -0.2
color=#0000ff>TLT -0.7 +0.1 +0.8 -0.2 -0.5
color=#0000ff>XAU -0.4 -2.3 +1.2 +1.6 +2.1

Table
Legend

^next^

 

For Active
Traders

The SMHs traded up to 39.80 on the 9:40 a.m.
ET
bar yesterday (five-minute chart) which was right at resistance, as those of
you
who are aware of my “523” trend method realized. More importantly,
you got an RST
sell entry below 39.72 that traded down to 38.80 before a reflex up to 39.31
and
closing at 39.04. This was a tight 12-bar RST sell pattern at resistance
after a
+3.8% move from the 3:00 p.m. low on Tuesday, so it should be no surprise
that
there might be a retracement, so net net, you took it where you got the
defined
setup.

If you played the QQQs yesterday, you either
took
the gap pullback short after the 9:40 a.m. bar 35.46 high, or the .618
retracement to Tuesday’s 34.64 low. The QQQs hit 34.97 on the 12:25 p.m. bar
vs.
the 35 level, which is the .618 retracement. Entry above 35 carried up to
35.45,
closing at 35.34. The SPX and Dow had similar retracement setups.

Today’s
Action

It’s option expiration Friday, so daytraders
are
pawns in the game, and some of the option activity has already taken place.
This
means don’t be a hero, only take the significant setups. The SPX first level
of
resistance is 1125.76, which is the .382 retracement to 1163.23, with 1126
the
“523” trendline and the 50-day EMA just above at 1127.50, so there
is some
confluence at that level. If the game is up today, then the next level after
that is the 1131.20 20-day EMA, and 1132.92, another retracement level to
1163,
followed by 1140.

On the downside, we know the levels of the
past
six days, which I would like to see broken, because the SPX hasn’t retraced
enough, in my opinion, and in fact, it hasn’t even declined -5.0% on a
close-to-close basis yet, with worst case so far at -4.6% from 1157.76 to
1104.49.

Have a good trading day and a better
weekend,

Kevin Haggerty