Red To Green To Red?
Early
gap up yesterday, then the volatility narrowed, as
the SPX
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12:30 p.m. The breakout above the 8, 20 and 60 EMAs on your five-minute chart
was a moonshot as it ran from the breakout just above 820 to 847, which is the
.618 retracement zone between 965 and 776.
We can mention new
quarter money, pension reallocation of bonds to stocks, Iraq news — which is
probably fool’s gold — and the normal run of programs and short covering, all
of which is after the fact. Narrowing volatility always gets resolved, and as a
trader, you were ready to play the breakout from that triangle in either
direction with tight stops.Â
NYSE volume was about the
same as Monday at 1.7 billion, a volume ratio of 80, and breadth +1221. It was
certainly a buying pressure day with a Change in Direction wide-range bar
closing in the top of the range above the previous day’s high and above seven of
the previous eight closes with a higher low and a higher high. One day does not
make a market.
The major indices had
significant percentage changes as the Dow
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NDX
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(
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were green, with the
(
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(
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were strong with the chemical iShares +6.9%. Even the brokers, under fire from a
wannabe politician, gained 3.0%.Â
There was an RST buy
entry on the Dow yesterday above Monday’s high of 7699, which was the
“5” point low day. It was not taken here because Monday was such a
wide-range-bar day of 237 points from high to low, and entry above 7699
yesterday already had the Dow up +107 points off a gap-up opening.
Any follow through in the
indices will set up some lowest common denominator shorts at the 20- to 50-day
EMAs. For the SPX, that 20-day EMA is at 861, and the 50-day EMA at 893, which
happens to also be the .38 retracement level between 965 and 776. The .50
retracement is 870.50, along with an 871 Square of Nine number, so there’s
certainly an 860 – 870 resistance confluence.
The answer to your
question of why I am thinking short after yesterday’s afternoon moonshot is that
I am preparing my awareness levels in advance because last I looked, all
longer-term EMAs are still declining. Trading with the trend means shorting
retracements to longer-term declining moving averages with stops just above the
averages. As mentioned yesterday, entry at the lowest common denominator.
When the major indices
and HOLDRs reach oversold volatility bands both short and long, in conjunction
with other key inflection points, then traders have a chance to play some very
sharp oversold rallies. If you’re sequence trading, that’s what you do, and that
is just taking what the market gives you. Leave your textbooks at home, learn to
adjust to changing markets, and don’t try to impose the “page whatever you
read” on all kinds of markets. If you can’t do that, then do nothing until
your kind of market comes along again. FYI: It might just be longer than most of
you think, so don’t give up your day job.
Have a good trading day.
Five-minute chart of
Tuesday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Tuesday’s NYSE TICKS