Prepared For The Week

• January 28, 2002
• Kevin Haggerty

By the
close Friday, the net result
was down for the NDX
(
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-0.4%, for the day. So here it is back at the 1557 swing point, which is the
lower boundary of the trading range starting in November. The 50-day EMA is
right above at 1581, and the 200 SMA is at 1613. The SPX
(
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sold off into the close, which is not what we like to see, especially for the
third straight day. The index closed at 1133.28, +0.1% for the session.

Getting ready for this
week and the alert zones in play, I started with the 60-minute chart of the SPX.
My high point is 1177, the 1/7 high, and the 1/23 low of 1117.43. Keep in mind
the .38 retracement to the all-time 1553 high is 1177. As I look at the
60-minute chart, I see a classic inverted head-and-shoulders with the neckline
at 1139.50, which is Thursday’s intraday high. The 1140 level is also the .38
retracement to the 1177 high from 1117.43. The SPX has challenged 1140 four
times since Jan. 16, having lost at this resistance each time.

Next, I do my “what
ifs” so I am prepared to react on any setups, either continuation or
reversals, when price approaches any of the alert levels. I always have this
prepared in advance. Subtracting 1117.43 from 1139.50 and adding the result to
1139.50, I get a head-and-shoulders breakout projection of 1161.57, which as you
remember, is right at the top of that 1150-1160 confluence of resistance that
has given us good reversal setups both intraday and daily.

Next, I fill in the Fib
retracement levels above 1140. The .50 retracement to the 1177 top is 1147. I
look at my weekly chart and see that the 30-week EMA is 1149. Also, I must point
out that the 10-week EMA is 1139, and we have yet to close above it during this
bounce. If they turn green, we will be ready to play the head-and-shoulders
breakout above 1140 and the 10-week at 1139 if the dynamics agree with
price. 

Next stop is the .618
retracement at 1154, which has a square of nine and cardinal numbers at 1157 and
1158. After that is the .786 retracement at 1164.24. Larger trend continuation
is, of course, above 1177. The 200-day SMA is 1166 and the 200 EMA is 1170.
There’s is a lot of resistance between 1147 and 1166 before the bulls are let
loose again. Now that the Generals
have bid up many stocks to significantly high valuations relative to earnings,
we better start to see it soon or else probabilities of a deeper retracement or
even new lows increase.

Looking at the 60-minute
chart once again, and the SPX having closed down into the bell three days in
succession, I must anticipate my downside alert levels. The Fib retracements
down from 1139.50 to 1117.43 are the .618 at 1125.86 and the .786 at 1122.15.
The first leg down is 1139.50 to 1127.82, label it “A-B”. Then a leg
up to 1138.31, label it “B-C”. If the next leg, “C-D”, plays
out, we must anticipate reversals at the above Fib levels. The symmetry of
parallel lines where legs “A-B” equals “C-D” is 1126.63.

Parallel line symmetry
has been around since the beginning of markets of all kinds, in addition to Fib
numbers. The book writers have renamed some of them, such as a Gartley pattern,
which is simply parallel lines with a Fib retracement. I don’t care how it gets
there, a straight line or a zigzag. I make a decision on the reversal price
action at the level in conjunction with other dynamics, such as oversold,
overbought, etc. Dynamics make the pattern, not the numbers, and the art is
recognizing it when it’s happening. Sorry, folks, backtesting won’t get it done
for you.

If the SPX blows through
these downside levels and below 1117.43, I must anticipate the Fib extension
levels from the 1.27 at 1111.47 to the 1.618 at 1103.79. The next level will be
1088, which is the .382 retracement to the 945 low from the 1177 high. I think
we have this week covered. Save the thought process and incorporate it into your
trading plan. Besides, I had nothing else to do Saturday morning, so I decided
to bring you along with me as I prepared for the week. It helps you get lucky
when you do this kind of preparation.

Stocks
Today

Most of the semis in the
S&P 500 had top 10% closes, so if they come for them, look at
(
BRCM |
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(
KLAC |
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(
NVDA |
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Also,
(
LOW |
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(
ELBO |
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(
EMLX |
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(
APOL |
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(
OSI |
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(
FITB |
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(
STT |
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(
GILD |
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(
SCIO |
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(
JEF |
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(
NETA |
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(
MENT |
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PowerRating).

On the shortside, stay
with the market and sector proxies. 

Have a good trading day.

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

Five-minute chart of
Friday’s NYSE TICKS