Positive: SOX, MSH, NDX; Negative: DRX , BKX, XBD
Aside from the
first 45 minutes, the NDX was positive all of Monday, and at one
point was up 36, with the S&P futures minus 8 and the S&P 500 cash down
4. The SOX, which is the semiconductor index, and the MSH, which is the Morgan
Stanley High Tech index, were green from wire to wire. On the other hand, the
drug index (DRG), the bank index (BKX), the broker-dealer index (XBD), and the
retail index (RLX) were red from start to finish. The Spiders came back below
Friday’s low to fill the gap from Friday’s explosive opening.Â
As we mentioned Monday, many good trades
can be had after they run stops below the prior day’s low of an upday and then
reverse to the upside. You had the opportunity Monday as the QQQs took out
Friday’s low of 157 13/16 after opening at 158.85 and traded down to 157 3/8,
before reversing the 157 13/16 low and running to 160 3/8. There, it
consolidated between 160 3/8 and 159 3/4 and then broke out to the 161 high.
Markets are perverse, so the QQQs did an end run and traded back down through
the consolidation bottom of 159 3/4 and proceeded to trade down to 158 before
the 3:30 rally, which took the QQQs back to a 159.64 close. That reversal of the
lows was an excellent trade, because the NDX opened down with the S&Ps and
Dow but the SOX and MSH were green right from the start, and exhibiting good
relative strength. That should have given you confidence to take the reversal of
the low after the mysterious “they,” whoever they are, scared out the overnight
longs who live by the credo of “if it closes up, carry it overnight.” Not so
good to do in these kinds of markets without being hedged.
When the market opens up flat to down as
it did Monday, and then rallies because the Generals don’t see their stocks
coming in, the Generals get more aggressive and reach for volume as they see
other buyers arrive to buy the same stocks they are buying. And that is when you
as a trader will see the action and get on board. The QQQs Monday are an
example. Save your 5-minute charts to remind you of the action and make a note
on it of how the market opened and what the SOX and MSH were doing as the
overnight longs were scared away. You had a good trade-through entry and moves
in all of the stocks Monday, except for Echostar [DISH>DISH] and General
Motors Class H [GMH>GMH], which both exploded to the upside. Both gapped open
and didn’t pull back to close the gaps. That is very strong action when you get
a stock that gaps open and doesn’t fill the area between its lows and the
previous day’s high, such as DISH and GMH Monday. Both stocks closed at new
highs and in the top of their ranges. It sets them up again as possible
continuation trades above Monday’s high or on pullback trades approaching
Monday’s low. They both will be on pattern setups today. High RS stocks give
you that kind of action when the trend is obviously up and the ADX is greater
than 25 and rising, and the stock is above its rising 10-, 50-, and 200-day EMA.
Also save your two-day, 5-minute chart of DLTR, which gave you a two-day Slim
Jim pattern and a breakout above the previous day’s high of 45 1/8. Double Slim
Jims usually give powerful moves and you might double down your position when
you get one.
Program
Trading NumbersBuySellFair
Value3.601.502.60
Pattern Setups
I’m going to repeat five names I
mentioned Monday because they all had wide-range bar moves to new
highs except for Legato Systems [LGTO>LGTO], which had a wide-range bar
breakout of an eight-day daily bar consolidation above all three above-mentioned
moving averages. The stocks are: DISH, GMH, AMAT, SDLI, and LGTO. Those are
repeats from Monday. And again, they’re expansion moves, so if they mark them
up, take the continuation entry or the second entry. Other stocks that set up
Tuesday:Â DCLK, TAN, VSTR, TXN, and AMCC.
Have a good trading
day.