Semis Still In Focus

July 21, 2003
Kevin Haggerty

What Friday’s Action
Tells You

The hourglass was turned upside-down on Friday
as the SPX 993.32, +1.2% on the day, with an intraday high of 994.17 and low
of 981.73, which is an inside day with almost the same daily range as Thursday,
where the SPX had an intraday high of 994 and an intraday low of of 978.60.
After three and a half days down since Monday at 11 AM, you were ready for any
reflex up on Friday. See the July 18 commentary.

NYSE volume declined to 1.35 billion, as prices
rose versus the previous two days of declining price on heavier volume. That has
to change quickly if the SPX cycle period is to be sideways and up versus down
into August. The volume ratio was very positive at 80, as was breadth, +1149. It
is also significant to note that the SPX closed above its 1.0 volatility band of
990.87 versus reversing to the downside the previous day. That doesn’t happen
too often and it is usually when trading gets erratic preceding a directional
move in either direction, duration of which you can never be sure of.

Friday was excellent,
as you got the expected up in the major indices including the best
trade, which was in the SMHs. The SPX didn’t give you the early down on the
opening, but rather the SPY opened up at 99.02, hit 99.25 on the 9:35 AM bar,
then traded straight down to 98.48, which was the intraday low and back into the
previous days’ closing range.

It then rallied from there, trading up to a 99.80
high, closing at 99.56. The decline to 99.48 was on reduced volume, and then you
got the narrow range inside bar pattern on the 10:20 bar on your 5-minute chart,
which had the largest up-volume spike of the day. Entry was above that bar’s
high of 98.65. If the SPX had taken out the previous day’s 978.60 low, which
would have shaken the tree, the trade would probably have been better — but you
take what you can get and move onto the next one.

Here’s Friday’s SMH Trade

However, you did get that kind of a trade in the
SMH, which opened up only .16 at 31.50, hitting 31.54 on that opening bar and
then traded straight down to the intraday low of 30.60 on the 10:15AM bar,
having taken out the previous day’s low of 31.07. The move below 31.07 was on
light volume and then you got a narrow range inside bar setup with a significant
increase in volume on the 10:20 AM bar. Long entry was above the narrow range
bar’s high of 30.77. The SMH traded up to a intraday high before closing at
31.45. That was a 2.9% tradable spread zone between 30.77 and 31.66. Hope you
caught some part of that move.

I have included a chart of the SMH setup for your
review. It doesn’t include the full day’s action, but it does include the entire
pattern. Bars 1,2,3, and 4 were declining price on reduced volume. Bar 5 was the
narrow range signal bar on a spike in volume and entry was above the high of
that bar.

It is significant to note the importance
confluence in conjunction with this first hour Trap Door Strategy. The 1.28
volatility band for Friday was 30.55 with the 1.5 volatility band at 30.44.Â
The 20-day EMA on the daily chart was 30.58. You had to be ready for any upside
reflex trades in this zone, especially since the SMH had quickly declined 7.1%
from Wednesday’s high ofÂ 32.95

The Trap Door is just one of the first hour
trading strategies included in the current module. In last Monday’s commentary,
you were alerted to the fact that 7-8 Dow stocks were reporting last week, along
with along with 3-4 economic reports in addition to Greenspan’s dog and pony
show.

It was also said that news would dominate
technicals for the week, and that most of the day trades would be reversals on
overreactions. To give you a snapshot of the actual results of those Dow stocks
reporting, and some of the other major stocks which included some financials and
semiconductors, I have included a table today which shows the very erratic
trading that results from media hype, front running and the gullible public
buying stock on the “better by a penny” mantra. It always creates day trading
opportunities.

The table lists the reporting dates in addition
to the percentage change for each day of the week and the net percentage change
for the 5 days. Seeing that Monday was a major hype day starting the week, I
have also included the percentage volume change above its average volume that
the stock traded on Monday. For example, Intel was +2.8% on Monday and traded
130% more than its average daily volume. It gained +8.1% through Wednesday. It
reported earnings after the close on Tuesday. Money was taken off the table on
Thursday and Friday as Intel declined 2.8%.

Starting this week, we find the major indices
still locked in a month-long trading range, with Dow in a symmetrical triangle
between 9278 to 9040. The SPX closed at 993.32, just above its 20-day EMA of
991.03, which will once again be a daytraders’ pivot today.

Friday gave daytraders a quick three day oversold
reflex up, but nothing carries over today as the market has been digesting the
rally that started in March by trading sideways and is not oversold on the daily
chart basis. Semiconductors continue to attract volume and the SMHs have
retraced 7% after the 20% advance in just 15 trading days. That means they
remain a primary focus both ways because the hedge funds will keep the ball
rolling as long as the Generals continue with that order flow.

Have a good trading day.

Kevin Haggerty

Semis Still In Focus

BUY THE FEAR, SELL THE GREED

Quick Links

Company Info

Contact

Company Resources