Short-Term Oversold…Be Ready
What Thursday’s Action
Tells You
Yesterday’s market action was the second day of
increased volume and declining prices, as some money was taken off the table.
The institutions (“Generals”) were very active, and there was a rush
to the exit in many stocks that have had extreme moves during this rally since
March 12. NYSE volume was 1.64 billion, the volume ratio 20, and breadth at
-1633. The three-day moving average of net declines is -1327, and the volume
ratio three-day moving average is below 25, both of which are short-term
oversold. The
(
$SPX.X |
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PowerRating) closed at 981.73, -1.2%, the Nasdaq
(
$COMPQ |
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PowerRating) at 1698, -2.9%, and the
(
QQQ |
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PowerRating)s closed at 31.21, -3.0%. The
major sectors were all red, with the exception of the
(
OIH |
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PowerRating)s at +1.2%.Â
The
(
SMH |
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PowerRating)s ended at 31.40, -3.4%.
(
INTC |
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PowerRating)
gave back 1.7% from its +8.1% three-day move.
(
QLGC |
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PowerRating) and
(
TER |
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PowerRating), both of
which reported this week, having taken big price hits. QLGC is -11.7% in two
days, and TER -13.6% in three days.
(
AMAT |
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PowerRating) was -4.7% yesterday after a
+10.5% gain Monday through Wednesday.
(
NVLS |
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PowerRating) lost 5.5% yesterday and is now
negative on the week, including the +5.9% Monday pop. Most all of the major
banks that reported earnings this week that the media hyped up are now net minus
after yesterday’s action “And the beat goes on.”
For Active Traders
Traders were able to successfully
execute one of the excellent first-hour strategies yesterday, which was the gap
pullback that resumes the direction of the opening, which was down yesterday.
For example, the
(
SPY |
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Chart |
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PowerRating) closed at 99.94 on Wednesday and opened down at 99.15
yesterday, followed by the highly probable contra move, with the SPY trading up
to 99.57 on the 10:00 a.m. ET bar. The SPY reversed on this bar in the direction
of the down opening, trading down to an intraday low of 98.16 by 3:00 p.m.,
closing in the bottom 25% of the range at 98.50.Â
The time period from 10:00 to 10:15 a.m. very
often generates a good trading move. Whether you were trading the SPY or the
E-minis, it was a successful day for traders, as this gap pullback trade had the
added benefit of a trend down day. The downside pivot for traders, which was the
20-day EMA of 991.74 for the SPX and 99.45 for the SPY, was also re-crossed to
the downside on the gap pullback short trade. See yesterday’s commentary.
Today’s Plan
Starting out today, the major indices are trend
down three-and-a-half days since 11:00 a.m. on Monday morning following the
media’s earnings and economic hype. Traders should be ready for any upside
reflex today. The three-day moving average of the volume ratio and breadth are
short-term oversold. The SPX is at the lower band of its three-month regression
channel, hitting a 978.60 intraday low yesterday, closing at 981.73 and also
below the 1.0 volatility band. The 50-day EMA is below at 970.40. Any early down
today in the major indices will result in a tradable intraday move to the
upside. FYI: The synthetic straddle has been excellent so far due to the recent
volatility, which was expected and articulated in the July 3 commentary.Â
Have a good trading day.
Kevin Haggerty
