Reversal strategies in play at resistence
In the last commentary
(6/14/06), the SPX was expected to test the obvious first resistance
at 1256 – 1263 (233-200-day EMA zone) from the short term oversold zone, which
also had positive momentum divergences for all the major indices. The QQQQ also
had symmetry in the 37 zone, so we said any bounce would come from these zones
for all the major indices. The short-term probability favored the buyers, and
that was the result as the SPX traded up to 1258.64 on Thursday and 1256.27 on
Friday before closing at 1251.54. The QQQQ traded to 38.79 from the 37.16 low
and closed at 38.34. NYSE volume was 2 billion shares on Friday with the volume
ratio 30 and breadth -1214 as the SPX closed at 1251.54 -0.4%, with both the
QQQQ and $COMP -0.7%, while the $INDU finished flat. On the week, the SPX was
-0.1% and the Dow +1.1%. The financials led the downside last week, with the TLT
-1.7%, XBD -2.8% and BKX -2.6%. Energy and gold finished +0.2%, while the semis
led the upside with the SMH +1.4%.
Continuation for the SPX at the 233-day EMA at
1256.23, 200-day EMA at 1262.20 and the declining intermediate trendline channel
at about 1270. There is also other retracement symmetry to both the 1290.68 and
1326.70 highs from 1260 to 1263. The $INDU closed at 11,015, above its 200 – 233
EMA zone from 10,950 – 10,905, but right at the resistance from 11,050 to
11,200. The IWM has resistance form 69.60 – 70.30 and the intermediate downtrend
channel is up at 71.50. As traders, we have already made the short-term oversold
buy decision and capitalized on it from a high probability zone. The next
decision will be a sell one on any upside follow through into the resistance
mentioned above. It is not a “what do we do now” after the fact decision.
Reversals such as Trap Doors and RSTs continue to be the primary profit center
for daytraders because of all the reactions to news and geopolitical events. I
don’t expect that to change and I expect some more institutional selling on any
further rally.
Have a good trading day,
Kevin Haggerty