Overreacting Both Ways

• March 8, 2002
• Kevin Haggerty

The
three major indices finished down yesterday, but
the battle between buyers and sellers was a standoff. The NDX
(
$NDX.X |
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was -0.9%, the Dow -0.5%, and the SPX
(
$SPX.X |
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PowerRating) -0.5%. NYSE volume was 1.5
billion, the volume ratio was 45, and breadth neutral at +30. The Nasdaq traded
1.9 billion shares with a volume ratio of 51, while the NDX had a volume ratio
of 45. Based on these volume ratios, it wasn’t a selling pressure day. The SPX
did have a negative advance/decline ratio, which was the most since Feb. 20, but
not surprising after such strong gains. 

The SPX closed on a
reversal bar bottom-of-the-range close at 1157.54 vs. its 200-day EMA of
1155.90, so that can be used as an intraday pivot today both ways because who
knows? The news is being overreacted to both ways. The 200-day SMA is down at
1149.35. Yesterday’s high was 1167.94, and that was up against a 233 Fib EMA of
1168.56. When looking at long-term moving averages, look at the 200-day EMA, the
233 Fib EMA, the 30-week EMA, along with the 12-month EMA. Also, be aware of the
SMAs for the same time frame.

The short-term overbought
condition hasn’t been resolved as the
(
QQQ |
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day, so heads up early next week. The volume in the QQQs has declined each of
the past three days with rising prices, as have the
(
SPY |
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PowerRating)s. Looking at my
trend-following method, which encompasses the five-minute, 15-minute, 60-minute,
daily and weekly time frames together, I see that the SPX and DJX are all still
in a top bullish mode, while the NDX is bullish in all time frames except weekly
where it must trade and close above 1557 for full confirmation. I will introduce
this trend-following method and how to utilize it for intraday, short-term and
long-term trading at the May seminar in California.

Also in full positive
mode are the
(
$SOX.X |
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(
$RLX.X |
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(
$BKX.X |
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sell warnings from three intraday time frames are the
(
$XBD.X |
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522.91, the
(
$BTK.X |
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(
$OSX.X |
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PowerRating) which is
slightly negative in three intraday time frames, which means barring full-scale
Mideast conflict, be careful of any longs and/or look for intraday short setups
with tight stops. The daily and weekly time frames for the OSX are still very
positive, and they take precedence. Using all five together correctly is like a
good opera: it just flows. If you are using the volatility bands, then this
choppy volatile market has been very good to you.

Stocks
Today

Although the volume ratio
for the NDX 100 was 45, only 6 NDX stocks closed in the top 25% of the range, so
that minimizes any long continuation setups today. The few that I did see are
mostly listed, and they are
(
MMM |
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(
WAG |
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(
CLX |
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(
VAR |
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(
WY |
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(
GCI |
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(
SEBL |
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PowerRating).

In the drillers, I like
(
RDC |
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(
NBR |
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charts. 

On the shortside today,
I’m really only going to look at the index and sector proxies, and also, the
major brokers set up as shorts at the 200-day EMA, but Smith Barney came out
this morning and downgraded them, so I assume there will be down openings, so if
there’s any kind of rally for some reason during the day, you can look for your
spots.  

Have a good trading day.

Five-minute chart of
Thursday’s SPX with 8-, 20-,
60- and 260-period
EMAs

Five-minute chart of
Thursday’s NYSE TICKS