Prepare For The First Near-Term Potential Intraday Move

April 10, 2003
Kevin Haggerty

It was also a strange
day, but there was some decent travel range that gave us SPX RSTs on both the
buy and sell side. The first was an RST buy entry above the 876.98 high of the
9:45 a.m. ET bar. This trade ended with an RST sell entry below 885.71. The high
of the sell signal bar was 886.78. There was a quick move to 887.35, which
stopped you out just above 886.78, but you got second entry below 884.76. That
trade carried down to the intraday low of 866 on the close.

The trade was not held
into that low, however, because there was another RST buy with entry above
873.77, which was the 12:15 p.m. signal bar. This trade also made you cover your
short. It only advanced to 874.67 before reversing and stopping you out with a
small loss or a scratch. The initial RST buy ran +8.7 points from entry to exit,
and the RST short traded down about 11.5 points before the cover at the 873.77
level. Not so bad. The stop out on this RST was less than a point.

The next opportunity was
a 1,2,3 lower bottom, or Shake & Bake, as you like to say, with entry reversing
the 868.62 low of the 12:50 p.m. bar. This trade ran to 874.73 on the 3:15 p.m.
bar. There was a downside air pocket during the market-on-close time period,
starting on the 3:40 p.m. bar. The SPX lost 7.4 points during this 20-minute
period and lost 12.3 points on the day. So, that 20-minute air pocket accounted
for 60% of the SPX loss on the day. The Dow lost 73 of its 101 total points
during the same period.

Going into yesterday, you
were aware of the VIX at the bottom of its three-month regression channel and
almost 10% below its 10-day moving average, and the SPX at the top of its
channel. Things just seem to happen at extended levels. (See yesterday’s
commentary.) The VIX went out with a 30.91 close yesterday.

The SPX closed at 866,
which is below the 867.11 1.0 volatility band yesterday. This most often leads
to lower prices the next few days. A pullback target would be the three-month
median price line which is just above the 840 level, or maybe even a quick trip
down to the .618 retracement zone around 830. On an intraday basis, the SPX is
in a potential RST buy setup this morning, and the .382 retracement from 904.89
to 788.90 is around the 861 level, which is also the 861.45 .50 retracement zone
between 954.28 and 768.63. The RST pattern needs a reversal above the high of
the low bar, whichever one that turns out to be, if the SPX goes south early.
The point is you always prepare for the first near-term potential intraday move.
Because the SPX made new lows into the close, I want to know what the immediate
Fib extension levels are for the leg up from 868.03 to 874.73. They are: the
1.27 at 866, 1.618 at 863.89, the 2.0 at 861.33, and the 2.24 extension at
859.72.

Have a good trading day.

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

Five-minute chart of
Wednesday’s NYSE TICKS

Prepare For The First Near-Term Potential Intraday Move

BUY THE FEAR, SELL THE GREED

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