Semiconductor/SPX Divergence Will Be Resolved
What Tuesday’s Action Tells
You
The SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) made an intraday high
of
1124.08, closing at 1121.29, +0.7%. The .618 retracement to 1163.23 from
1060.72
is 1124.07. After trading to 1124.08 yesterday, the SPX reversed down to
1116.36, then rallied in the last hour and fifteen minutes into the 1121.29
close.
The Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) hit a 10,364 intraday
high,
closing at 10.341, +0.8%. The .618 retracement to the 10,754 bull market
high is
10,383 with the 1.414 extension of the last leg down at 10,378, and the
1.618
extension at 10,464.
This is the third rally since the decline
from
the 1163 and 10,754 bull market highs for the SPX and Dow, and they have all
come from anticipated price zones with sequence. Of course, most were
negative
at each of the three bottoms. The first rally from 1057 – 1151 for the SPX
was
+5.8%, the second was +6.1% from 1076 – 1146, and now this current 16-day
rally
from 1061 is +6.0% so far as price trades into upside resistance and the
herd
gets positive once again with the rising price. Most of them missed the
buying
opportunity at the lowest common denominator in the last price zone.
In the sectors, the brokers led at +2.7%,
with
the CYC +1.1%. The
(
OIH |
Quote |
Chart |
News |
PowerRating) was -1.1%, but that follows a +12.8% move that
we
caught from the retracement to the rising 200-day EMA and 68 low, rallying
to a
new high in price of 76.73. Let the breakout buyers pay that price while we
wait
for the next retracement.
The most significant sector action is in the
semiconductors, as the
(
SMH |
Quote |
Chart |
News |
PowerRating) made another low in this current decline to
yesterday’s 27.99 close vs. Friday’s 28.30 close. The .618 retracement to
17.32
(October 2002 low) is 28.19. The initial bounce from this zone was +9.5%
from
the 08/13 28.30 low to 31, then fading at the declining 20-day EMA. (All of
its
daily chart EMAs are declining.) This current divergence from the SPX/Dow is
not
good if you are buying the SPX/Dow index proxies into this current
resistance.
The semis must turn back up if there is to be any significant upside
progress
into what has been, historically, the worst month of the year, not to
mention
the geopolitical situation.
For Active
Traders
I have included yesterday’s SPX five-minute
chart
for those of you who use my strategies. It shows the negative divergence as
price trades into the .618 retracement zone (1124.07), hitting 1124.08, then
declining to 1116.36. There was also more confluence as yesterday’s -1.5
volatility band was 1124. This decline set up the RST entry above 1117.84,
which
I’ve labeled from right to left, which is how you identify the RSTs. This
trade
carried to 1121.44. There was further sequence for the short sale, as 1125
was
the three-month +2.0 standard deviation band.
Today’s
Action
The SPX and Dow are both into their .618
retracement zones to their bull market highs and also their three-month +2.0
standard deviation bands, 1125 for the SPX and 10,350 for the Dow. The +3.0
band
for the Dow is about 10,500 and for the SPX about 1145. The .786 retracement
to
1163.23 from 1060.72 is 1141, just above the downward channel line from
1163.23.
Until proven otherwise, this is another channel rally up to resistance, so
it is
a short bias into rallies and a preference for only buying intraday on
weakness/retracements.
The semis are the primary reversal focus into
this .618 retracement zone for the SMH (again?) in case the Generals decide
to
play the long side. If the hedge funds even get a hint of the Generals
buying at
these levels, there could be a very quick move. And the hedge funds always
get a
hint.
Have a good trading day,
Kevin Haggerty
