Reward/Risk Zone
It was
a typical Greenspan rate day with
early trading dull as the major indexes were drifting down into the Federal
Reserve time slot. After the expected rate cut, there was the expected futures
acceleration. I would love to see the audit trail of those futures trades after
announcements. The SPX
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down to 1098 by the 2:50 bar, and then straight up to an 1119 close, taking the
SPX out of its trading range. The
NDX
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range.
On the day, the SPX was
+1.5%, the Dow +1.6%, and the NDX +2.9%. All of the tech indexes — hardware,
software, networking and semis — gained 3%-4%. The
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3.4% to make it five straight up days for a +20% gain over that period.
NYSE volume picked up to
about 10% above average at 1.342 billion shares, the breadth improved slightly
to 1010, and the volume ratio slipped a bit to 68, but is still positive. The
Fib retracements now in play measure from the May highs to the September low. If
you sell retracements to inflection points in bear markets and buy pullbacks in
bull markets, you are in a zone of action right now. That is when you get your
highest probability trades with the best reward to risk.
For example, the SOX
closed at 520, +51% from the 344 September low in just 28 days. If you got a
reversal entry pattern at a key alert level where you risk no more than 3%, and
maybe less, to get a reward to risk of 10:1 or better, would you take it? Most
of you probably wouldn’t because your emotions won’t let you do it. There is no
ego involved whether right or wrong. You should look at it as just another trade
opportunity with a good reward to risk. The major indexes are all still below
their declining 30-week moving averages, so by that definition, we are still in
a bear market.
The SOX is still below
its declining 30-week EMA of 541, which is just 4% above the 520 close. The Aug.
27 high of 613 is still in play for Fib retracements because of how oversold the
SOX got at the 344 low. If you look at your daily chart, you see the last
waterfall down to the 344 low was from a defined head-and-shoulder pattern. The
neckline resistance is 536-537. The .618 retracement to the 613 high is 510 and
the .707 retracement is 534, which coincides with the neck. The 144-day EMA is
541. Needless to say, we’re hoping for some more green today which takes the SOX
closer to the 534-540 zone. Even if the SOX only retraces .38 of its move, your
reward to risk is outstanding.
Do the same exercise with
the
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and/or attended a seminar, you should see the RSTs now setting up on the SPYs
and DIAs. Both five-points are in progress and entry is not until the close
below the low of the high day, which is the discipline of the entry because you
don’t know for sure what the high day will be. The
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also setting up RSTs right at key alert zones. When you look at all these
indexes, make sure you do your Fib overlay of moving averages, for sure right now
the 89, 144 and 233. I’d like to outline all of them for you, but time doesn’t
permit. My mission is to provide the education and point you to the tools which
make you better and more aware.Â
Retracements and
pullbacks to key inflection points are excellent levels to initiate an option
strategy with a defined risk while still taking your intraday trades long and/or
short.
Stocks
Today
Because of the inflection
points we are approaching, my focus is entirely on the
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PowerRating). I will continue to scroll the intraday
charts for setups long and/or short on all of the semis and biotechs, but am
much more interested in possible short-side position setups in the proxies. I
see the S&Ps are -6 right now pre-opening, and the NDX futures are -23. I
guess the futures guys slept in a little bit this morning. Â
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
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