Short-Term Oversold

January 23, 2002
Kevin Haggerty

The semis took another
dive, as the
(
SMH |
Quote |
Chart |
News |
PowerRating)s declined 4.9%, closing at 40.72. The .38 retracement to
the September low is 40.37, the .50 is 37.88, and the .618 is 35.39. The key
swing low pivot is 40.60. Some of the semis, like
(
KLAC |
Quote |
Chart |
News |
PowerRating),
(
MXIM |
Quote |
Chart |
News |
PowerRating) and
(
KLIC |
Quote |
Chart |
News |
PowerRating) are back to their 200-day moving average zone. For example, KLAC
closed at 47.86 vs. its 200-day EMA of 48.05 and the SMA at 48.81. It was an RST
sell below 58.10 in conjunction with a 1 2 3 higher top. It is now setting up
for an RST buy above the high of the low day, which hasn’t played out yet. The
first upside pivot becomes the 200-day moving average which can also be played
like the NDX 1557 low yesterday.

The NDX gapped up quickly
on the opening yesterday voiding any trade-through entry, but then failed and
gave you a 1 2 3 lower top short below 1557, which was also below the intraday 8
moving average of the high and 8 moving average of the low. The extent of the
downside move to 1500.89 was the luck part of it, but you can’t get lucky unless
you take the trade.

Yesterday’s market action
put the market in a short-term oversold zone, especially in the Nasdaq. The
(
QQQ |
Quote |
Chart |
News |
PowerRating)s closed at 37.40. The .38 retracement to the September low is 37.11.
Yesterday’s low was 37.33. The .50 retracement is 35.22, and the .618 is 33. The
35 zone is a price and volume support level and should hold the near-term bounce
of this decline. There is a point-and-figure downside projection to the 33
level, but I don’t think it is a nonstop deal to that zone. With the oversold
condition, the QQQs could get a quick bounce back to the 40 level, and possibly
to the upper Bollinger Band at 42.30. Use 37.85, the lower band, as a trigger on
the longside assuming the market dynamics look to be getting a bit greener.

Maybe today, the big
mutual fund and largest hedge fund will call a truce on
(
GNSS |
Quote |
Chart |
News |
PowerRating) as they
fight each other at the exit after the earnings flap. They broke it out at 37,
ran it to 75 on the year-end mark-up, and it closed yesterday at 57.64. Re-read
the “Pigs
at the Trough” commentary.

For today, you should
focus on intraday long setups in the QQQs, SMHs and
(
SWH |
Quote |
Chart |
News |
PowerRating)s if the oversold
techs start to bounce. The SWHs are back to the base breakout level, closing at
44.55. The SMHs, as I mentioned previously, closed at 40.72, just above its
40.60 swing point. You know where the continuation short is, but we might find
the 40.60 level as a pivot both ways today just as 1557 was yesterday.

Stocks
Today

On the shortside, once
again, stay with the index and sector proxies, but as I previously mentioned, be
ready to reverse the swing-point lows to the longside if we get the oversold
bounce.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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