Price Retracement Zone

July 9, 2004
Kevin Haggerty

What Thursday’s Action Tells
You

Yesterday was the fifth trading day down from
the
quarter-ending high on 06/30, and the major indices are in retracement zones
to
the mid-May lows where the rally started from the rising 200-day EMAs, so
the
focus switches to reversal price action. The SPX has also entered the high
end
of the short-term oversold zone, with the 4 MA at 35, but more so with the 5
RSI
now 20.

For Active
Traders

I have included the SPX five-minute chart
summarizing yesterday’s sequence action, which was excellent if you are
involved
with my material. It started with the early decline to 111.61/111.54 which
set
up the RST at the 1.414 Fib extension zone. There was a .786 retracement to
112.32 which was also the 240 EMA. This reversal gave you a second chance
with a
1,2,3 lower top trend entry below 112, which carried down to 111.33. This
set up
another RST, and 111.33 was also the 1.272 Fib extension. This trade ran to
111.83 and the 60 EMA before turning down to a new intraday low of 111.20,
which
is also another RST pattern with 111.33 being the 3 point, but there was no
time
left in the day. RSTs combined with sequence is very powerful. I didn’t even
mention the extended price bands involved in the trades, but some of you
know
what I mean.

Today’s
Action

The QQQ closed at 35.70 with the 200-day EMA
at
35.23. The .618 retracement to the 05/17 34.11 low from the 06/30 37.90 high
is
35.55 and that was yesterday’s intraday low. The 5 RSI is 23. The .786
retracement is 34.92, and that would shake the tree and probably have the 5
RSI
below 10. In addition, you have a retracement RST daily chart pattern in
progress, but I will look for intraday entry long before the high of
yesterday’s
low day. Another day or two of lower lows would be ideal, but markets rarely
do
what we want the most. Net net, you are in a price action zone, so be ready
to
take any intraday long reversal setups. Do the same exercise with the SPY
and
DIA, if you trade those, or their futures.

Watch the Nasdaq price action closely here,
as
the 1935 close is right on the 200-day EMA with the 5 RSI at 19 and the .618
retracement to the 1865 05/17 low at 1947. The last good short-term Nasdaq
setup
was the +3.5% continuation move into the 06/30 highs which was a six-day run
above all of the 20-, 50- and 200-day EMAs. This was a short-term trader’s
gift,
with a similar move for the QQQ. More downside early today would provide the
better intraday reversal opportunity, but right now (7:30 a.m. ET) the
futures
are green with the S&Ps +4, Dow +35 and Nasdaq +7.5.

Also, for those of you who are using my

Core
Framework, do your bands, in addition to today’s volatility bands. For
example, the one-month -2.0 standard deviation band is about 1108, and
the -3.0
band is around 1100. For the QQQ, it’s 35.70 and 35.25. It is a long side
trade
focus zone, so watch price action carefully today.

Have a good trading day and have a good
weekend.

Kevin Haggerty

Price Retracement Zone

BUY THE FEAR, SELL THE GREED

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