Put Yourself In Position To Get Lucky
What Friday’s Action Tells You
There was a lot of noise last week with earnings
and economic reports, in addition to the market analysts the media parades out
every time the major indices decline a few days in a row from new rally highs,
and they all give the overvaluation speech, which is, by the way, the same one
they all gave at the lows, never having said buy, of course. “Excuse me, what do
you really want to say?” Most professionals I speak with daily have locked in
most of the year’s gains and can still participate in most of the upside. That’s
why I don’t spend much time on the subjective BS you can’t quantify. “It’s how much,
not how right.”
The SPX
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were both -1.3% for the week and -0.5% and -0.3% on Friday, with the SPX closing
at 1028.90 and the Dow 9582. The Nasdaq
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and -1.1% on Friday, closing at 1866. The
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-1.0%, closing Friday at 34.23, +0.2%.
In the major sectors, the XBD, -2.3%, RTH, -1.9%
and OIH, -1.5%, led the downside for the week, while gold (XAU) was a winner at
+6.4%. The semis finished flat, as the
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+3.9% on Monday and Tuesday, then -3.9% Wednesday and Thursday, while Friday was
flat.
For Active Traders
In order to better help you understand the market
dynamics and daily flow of the market, I will be including, starting Tuesday, a
table each day in this commentary which I use myself to identify
high-probability short-term action zones. It will quantify the price action and
breadth so you can make objective decisions about the market action and shut off
all of the “maybe this, maybe that” commentary you read/hear every day. By
working with this table and maintaining it in your records, your market feel
will improve immediately, as will your trading. All of you who have attended my
seminars know that it is not the pattern that makes the trade, it’s the market
dynamics and other tools used in conjunction with the pattern that gives you the
high-probability edge.
Friday was an excellent daytrading game for the
major indices and big-cap correlated stocks. First, there was the opening gap
down in the
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decline in the direction of the down opening which occurs 60% of the time. The
decline carried down to the 2.0 volatility band zone on the SPX, which was
1017.27, and a perfect 1,2,3 double bottom setup in this zone. It doesn’t get
much better than that.
The SPX double bottom was 1018.44 and 1018.32.
The .618 retracement to the Sept. 30 990.36 low is 1015, which is also the top
of the three-month trading range from June 17 to the first breakout on Sept. 2.
This first breakout traded back into the range, with the 990.36 Sept. 30 low,
then it rallied to 1053.79 on Oct. 15, and now this second pullback to the
range’s upper boundary. If you didn’t enter on the 1,2,3 double bottom above
1019.12 on the SPX, then you had a second chance, as a 1,2,3 higher bottom
formed, with entry above 1020.84, which also re-crossed the 50-day EMA which was
1021.20 on Friday, trading up to 1028.90.
On Thursday, there was a late afternoon mark-up
into the close, but it was on declining volume, as sellers backed away. Friday’s
mark-up, starting at 3:15 p.m. ET on the SPY was on much better volume, as it
was in the QQQs. If you didn’t trade the SPY or futures Friday afternoon, you
might have taken the inverse head-and-shoulder breakout (also a 1,2,3 higher
bottom) for the QQQ above 33.70, which is also a re-cross of the 50-day EMA of
33.67. This rallied into the 33.23 close on excellent volume. The SMH had the
same pattern as the QQQ and a 37.95 entry ran to 38.48.
Based on the e-mails, some of you played the Trap
Door and then the Gap Pullback short setup, but decided to call it a profitable
day, having missed the afternoon moonshot. Either way, it was a very
opportunistic and profitable day if you knew what you were looking at and the
confluence which made that afternoon trade a high-probability setup. You put
yourself in position to get lucky with the late mark-up.
For Today
I am doing this Sunday night for Monday, so I
don’t know what the pre-market futures casino looks like, but the seven-day
pullback in the major indices has left some daily chart setups at the 50-day EMA
for the SPY,
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Friday and volume into the close. If the mutual funds decide to push price into
this important month end for them, rather than just hold price, then they have
the right daily chart setups to do it, as it will force technical traders to
follow. The five-day RSI for the major indices is into the early oversold zone.
INTC is a prime example of a primary holding that
has big gains and closed Friday at 31.08 in the top of the range. After trading
below its 20-day EMA of 30.59, then re-crossed it to close above the 20-day EMA.
This is the kind of stock and setup to watch for a trading opportunity this
week. As I mentioned above, I favor the QQQs because many of the funds are
overweighted in technology.
Have a good trading day,
Kevin Haggerty
