Sequence Trading At Its Best

  • March 1, 2004
  • Kevin Haggerty

What Friday’s Action Tells
You

It was the week that wasn’t for the SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating), as it finished virtually unchanged, closing at 1144.90,
+0.1%
on Friday. Money manager frustration continues for the sixth week, as the
SPX
has been trapped in the 1150 – 1161 zone. In fact, for the past six weeks,
the
SPX has, on a close-to-close basis, been locked in a 1.3% range between
1145.81
to 1131.13. The absolute high-low range is 1158.89 to 1122.38, which is only
3.2%. Friday’s 1144.90 close is still above all of its rising 20-, 50-, 89-
and
200-day EMAs, with the first one being the 20-day EMA at 1142.20.

The Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) closed at 10,584, -0.8%
on
the week, the
(
QQQ |
Quote |
Chart |
News |
PowerRating)s 36.60, -0.6%, and the Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating) 2030,
-0.3%, and down just 3 points on Friday.

The primary sectors that stood out last week were
the
(
BBH |
Quote |
Chart |
News |
PowerRating)s, +3.4%, but that was primarily due to
(
DNA |
Quote |
Chart |
News |
PowerRating) which was +13%
over the last couple of days on news. The
(
OIH |
Quote |
Chart |
News |
PowerRating)s were +2.6% and the BKX
+1.3%, while gold stuck its head up again, with the XAU +2.3%.

The semis led the downside, as the
(
SMH |
Quote |
Chart |
News |
PowerRating) closed
the week at 40.90, -1.8% on Friday, and that was also the net minus for the
week. I did not like the SMH action at all, as there were three days of increased
volume as the SMH declined from 43.82 to 39.97, followed by three days of rising
prices to 41.95 on Thursday, but with significantly declining volume. The 50-day
EMA is 41.95, as the SMH failed right at the number on Friday, declining to
a 40.90 close on an increase in volume to 21 million from the previous up day
which was on just 12.3 million. The 200-day EMA is down at 37.76 and appears
to be the path of least resistance going into today until proven otherwise.
The 40-week EMA is 38. The next RST buy pattern doesn’t come into play until
the 38.41 low is taken out. The three-month standard deviation bands are in
play at 38.75 – 39, then again at 37.50.

















































































































































































































































































































































size=2>  Monday

2/23

Tuesday

2/24

 Wednesday

2/25

 Thursday

2/26

Friday

2/27

 Net
color=#0000ff>Index            
color=#0000ff>SPX            
color=#0000ff>High 1146.69 1144.54 1145.24 1147.23 1151.68 1151.68
color=#0000ff>Low 1136.98 1134.43 1138.71 1138.62 1141.80 1134.43
color=#0000ff>Close 1140.99 1139.10 1143.67 1144.91 1144.90 1144.90
color=#0000ff>% -0.3 -0.2 +0.4 +0.1 0 0
color=#0000ff>Range 9.7 10.1 6.5 8.6 9.9 17.2
color=#0000ff>% Range 41 46 76 73 31 61
color=#0000ff>INDU 10610 10566 10601 10580 10584  
color=#0000ff>% -.09 -0.4 +0.3 -0.2 +.04 -0.8
color=#0000ff>Nasdaq 2008 2005 2023 2033 2030  
color=#0000ff>% -1.5 -0.1 +0.9 +0.5 -0.1 -0.3
color=#0000ff>QQQ 36.45 36.36 36.59 36.68 36.60  
color=#0000ff>% -1.1 -0.2 +0.6 +0.3 -0.2 -0.6
color=#0000ff>NYSE            
color=#0000ff>T. VOL 1.38 1.52 1.35 1.37 1.50 1.42
color=#0000ff>U. VOL 431 624 947 888 888 756
color=#0000ff>D. VOL 937 875 381 468 597 652
color=#0000ff>VR 31 42 71 65 60  
color=#0000ff>4 MA 32 34 43 52 60  
color=#0000ff>5 RSI 39 36 49 52 52  
color=#0000ff>ADV 1188 1654 2187 2071 2185 1857
color=#0000ff>DEC 2099 1650 1084 1209 1091 1427
color=#0000ff>A-D -911 +4 +1103 +862 +1094 +2152
color=#0000ff>4 MA -858 -678 -188 +264 +766  
color=#0000ff>SECTORS            
color=#0000ff>SMH -2.8 +0.5 +1.8 +0.5 -1.8 -1.8
color=#0000ff>BKX +0.2 -0.1 +0.5 +0.2 +0.5 +1.3
color=#0000ff>XBD -1.4 -1.2 +1.7 +0.4 +0.3 -0.2
color=#0000ff>RTH -0.5 -0.1 +0.9 +0.2 +0.2 +0.7
color=#0000ff>CYC -0.8 -0.3 +0.7 +0.5 +0.6 +0.7
color=#0000ff>PPH -0.5 +0.5 -0.2 -.06 -0.4 -1.2
color=#0000ff>OIH -0.5 +1.5 +0.3 +1.0 +.03 +2.6
color=#0000ff>BBH -0.9 -0.3 +0.9 +2.5 +1.2 +3.4
color=#0000ff>TLT +0.5 +0.2 +0.9 -0.4 +0.9 +0.3
color=#0000ff>XAU -1.0 +3.0 -1.1 +0.7 +0.7 +2.3

table
legend

^next^

For Active
Traders

Despite the almost unchanged day for the SPX, the
sequence trader had an outstanding day. The futures normally have runs of 5.5
– 7.5 points, and then some more significant 10 – 12 point runs. Either/or is
usually enough to trigger sequence trades with other confluence. I have included
the five-minute SPX chart from Friday, which highlights some of the sequence
for the SPX. The opening run was +7 points to 1151.68 on the 10:10 a.m. ET bar,
which was also the 2.24 1151.50 extension of the last leg down. Trap Door entry
was below 1150.61 and a 1,2,3 close entry below 1149.13. This move down went
about 10 points to 1141.80, which set up an RST buy pattern just below the 20-day
EMA and was also to the .786 retracement to the 1138.62 low of 1141.44.

The RST move re-crossed the 20-day EMA to the
upside and ran +8 points to 1149.88 at the .786 retracement to 1151.68 of
1149.57, then declined about 5 points into the 1144.90 close. All told, it
was
33  points of travel range, and yet the SPX closed at 1144.90 vs.
Thursday’s close of 1144.91. It didn’t matter where the intraday moving
averages
were or the lagging indicators and daily pivots. It was just recognizing and
reacting to movement of price, and it’s much more structured than most want
to
believe.

Today’s
Action

The energy stocks continue to be a focus, as
do
the brokers, which still remain at/or above their 20-day EMAs.
(
FRX |
Quote |
Chart |
News |
PowerRating) and
(
DGX |
Quote |
Chart |
News |
PowerRating) had moves on Friday, while others like
(
APOL |
Quote |
Chart |
News |
PowerRating),
(
EBAY |
Quote |
Chart |
News |
PowerRating),
(
LAMR |
Quote |
Chart |
News |
PowerRating),
(
COF |
Quote |
Chart |
News |
PowerRating) and
(
SYMC |
Quote |
Chart |
News |
PowerRating) still remain in set up position, so
they
get watched again today.

With the way the SMHs advanced on declining
volume for three days, hitting the wall at the 41.95 50-day EMA, they are
not a
focus today unless there is air pocket weakness. Morgan Stanley has a
semiconductor
conference,
(
INTC |
Quote |
Chart |
News |
PowerRating) had a downgrade, but other news was positive, so
just
sit back and see what the reaction is before getting involved. 

Have a good trading day,

Kevin Haggerty

P.S. You can finally learn
what traders have been asking me to teach them for years—