Short-Term Cycle Decline May Follow Quarter-End Markup

June 17, 2003
Kevin Haggerty

What Monday’s Market Action
Tells You

For Active Traders

The SPX accelerated early, with TRIN running
below 65, as it traded up to the 1005 level by 11:00 a.m. ET, then went sideways
in a 4 point narrow range until it was marked up 6 points into a new rally high
and close of 1010.86. The best early setups yesterday which many of you have
learned from the modules or seminars were the gap pullback for the QQQ and Trap
Door on the SMH with entry above 28.37 which traded +3.2% from entry to a 29.27
intraday high, closing at 29.15.
(
NVLS |
Quote |
Chart |
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PowerRating) and
(
KLAC |
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PowerRating) had the same setup.
There was better volume in the SMHs relative to its
average volume than the individual stocks, and we have seen that often during
this rally, playing the sectors rather than the individual stocks, which avoids
individual company risk.

The major funds want this quarter to be a major
positive, and barring any geopolitical surprise, that will happen. Having said
that, this corner will put on bear put spreads into this quarter-ending rally
against remaining longer-term index proxy positions put on after the reversal of
the 776 low from 769. Those of you that have read my commentary know the
confluence of things that made it a high-probability zone.

Today’s Plan Of Attack

My outlook hasn’t changed that there will be a
short-term cycle decline through July into maybe early August. The starting
points will be the mid time period, which we are in now, or if the quarter is
marked up, as it is, then it would start after some new money gets thrown into
new highs in the first few days of July.

Both the SPX and Dow are now over their one-year
2.0 standard deviation bands. The 3.0 band is just below 1050 for the SPX, so
needless to say, it’s not time to be a hero on the long side for initial
longer-term positions. I have included a chart today which gives you the
Fibonacci extension levels that are in play above yesterday’s 1010.86 high and
close. The 1.618 level is at 1025 and the 2.0 at 1081. There is a confluence of
other numbers in the zone, including 1042, which is the .382 retracement to the
1987 low, 1068, the .382 retracement to 1553 from 769, and 1072, the .38
retracement to the 1990 low. These are just awareness levels because there is
always tradable price action or turning points from zones of confluence.

When you are an active trader, the best you can
do is identify the setups where there was buying or selling pressure, and then
be ready to trade it the next day if the players return. You work up a long and
short list. Because of the end-of-quarter froth right now, this corner prefers
to play the index proxies and HOLDRs as the daytrading short list when the
market turns red.

As you have seen, recent end-of-day mark ups in
the last hour have had air pockets the next morning. Don’t get sucked into any
first entries above yesterday’s high on the focus stocks. There might be some
opportunities for some index proxy Trap Doors this morning if they want to run
these things up early.

Have a good trading day.

Kevin Haggerty

Five-minute chart of Monday’s SPX with 8-, 20-,
60- and 260-period
EMAs

Five-minute chart of Monday’s NYSE TICKS

Short-Term Cycle Decline May Follow Quarter-End Markup

BUY THE FEAR, SELL THE GREED

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