Play The Overreaction, Don’t Get In Front Of It
Wednesday’s SPX
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$SPX.X |
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PowerRating) rally back to the neckline
where it hit an intraday high of 868.72
stands by itself as it was a knife down yesterday after a 1,2,3 short trend
entry below 858, which was below the 8-, 20- and 60-period EMAs on your
five-minute chart. It formed a Slim Jim at the 260 EMA between 856 and 853.50,
then a downside breakout on the 2:20 p.m. ET bar, taking the SPX down to a new
intraday low of 843.74, but not on a closing basis, as it finished at 844.61.
The Dow
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$INDU |
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PowerRating)
hasn’t even made a run at the 8240 – 8250 neckline. It closed yesterday at
7945.13, just above its intraday low of 7938.62, -2.0% on the day, while the SPX
was -2.3%. The SOX lost 5.8% as it re-crossed the neckline to the downside
yesterday. The Nasdaq
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$COMPQ |
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PowerRating) lost 2.0%, and the NDX
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$NDX.X |
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PowerRating)
3.0%. The
(
QQQ |
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PowerRating)s have yet to break their Dec. 31 lows. In sync with the SPX
and Dow below the December lows are the MDY, IJR and IWM, so it doesn’t matter
— big cap, medium or small cap — everything’s moving in the same direction.
The RTH HOLDRs closed yesterday at 65.80 vs. the October low of 64.75. Goldman
Sachs tried an oversold retail hype yesterday, but it didn’t hold at day’s end.
In spite of the Iraq war
rhetoric and slow economic talk, the TLTs and other bond proxies have not made
much upside progress, which tells me that they are not tripping over each other
on a flight to quality, an assumption of slow economic growth. That means there
is still some perception out there that Iraq will be fast and the economy will
pick up in spite of Tom Daschle. Imagine that.
You have the SPX and QQQ
framework, we have entered the potential reversal zones, the SPX has made four
to five runs down to the 844 – 846 level, and if broken, the .707 is 823 for the
SPX, with a 1.618 Fib extension at 829. The .786 retracement is down at 808.
There is a time zone next week, but be nimble and stay intraday. This is
definitely a time to play the overreaction to news, not get in front of it. We
could get a decent reflex rally next week, assuming it doesn’t get carried away
to the upside today.
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