Reaction Mode
Friday
was a big-volume end-of-quarter day on
the New York Stock Exchange, with 1.6 billion shares trading, a volume ratio of 84,
and breadth a
whopping +1813. The S&P 500 closed at 1040.90 (or +2.2%). The index has
made up 65% of the 13.5% decline from the 9/10/01 close in a five-day reflex move.
The 20-day EMA is 1055. The index closed in the top of its range, in a narrow
rising ledge on your 60-minute chart. Short opportunity is trading down through
the 1036-1035 level.
The Nasdaq 100 didn’t fare as well as the SPX because of the quarter-ending cleansing of tech
stocks by the Generals. The NDX had declined from the 9/10/01 close of 1365 to a
1089 low on cycle date 9/21/01, a 20% washout. The index closed at 1168, which is
only a .28 retracement of that move. It is below all its moving averages, with
the 10-day EMA at 1190 and the 20-day EMA at 1271. It is 40% below the 1935 200-day
EMA and
23% below the 50-day EMA of 1441. The QQQs closed at 28.98,
within a five-bar wedge that certainly will be resolved this week. The blue
chips with balance sheets continued to lead and that won’t change this week as
Greenspan comes out of his bunker and October 4/5 is a minor cycle period.Â
The
reflex rally has produced some wide-range bars and gaps up and the flash move
for five days, so it makes sense to remain with intraday chart setups as they
develop. The Drillers had a flash
move on Friday but you are not going to buy up into it. Let’s see if anyone
returns to buy on a pullback, then they will provide opportunity. The PPHs
rallied up into the 20-day EMA of 99.03, for a 10% five-day move, closing at
98.56. I will look for short opportunity using Friday’s high of 99.60 and/or the
99.03 20-day EMA as stop references. Short
entries will be from intraday setups.
The BBHs gave us a reversal
bar/tail on the most volume since 6/7/01. They closed at a 110.95 vs. an intraday
low of 110.80. Certainly a potential short setup. If we get a fear day, the
Drugs and Biotechs could reverse Friday’s red day, as they often run contra when
a market is in a panic mode. The SMHs had a +4.6% pop from Thursday’s 28.84
close to Friday’s 30.18 high, closing at 29.56. They had a relatively big-volume
day, giving us a Doji bar close, and they are also in a six-bar Double Bottom
pattern. They have to clear 32.45 to have a chance.
The semis with the most
volume and top-of-the-range closes that advanced on Friday are MCHP and MXIM, so
have them on your screen, along with the SMHs. The XLKs — or the Technology
SPDRs — are in a potential 1,2,3 Higher Bottom on the daily chart with entry
above 19.98. They closed at 19.25. The XLFs — or Financial SPDRs — had a
five-day run, closing at 24.68 for a 17% move, low to close.
The insurance stocks made
up all of their panic move — and then some. Daily chart short entry is a downside
cross of the 24.51 20-day EMA, for a potential 50% retracement of 8-9%. Two
brokerage stocks that have pulled back to their 20-day EMAs after flash moves
are LEH, which closed at 56.85 vs. its 20-day EMA of 57.17, low to high it ran
31% in six days. Volume has declined with rising prices, so take intraday short
setup with stop above the 20-day EMA. The other brokerage stock in the same
retracement is MWD. If the early
red I see on the screen reverses, a brokerage stock with room to run 2 points or
so is MER, on a breakout of its recent range.
If the Generals put some
money to work this week, the SMHs and QQQs certainly have some reflex upside
room. The screen is still red on the S&P futures (-710) with the 1036 low as
downside trouble, while 1038.40 has to be cleared before any upside move takes
place.
Have a good trading day and
keep your stops tight.
