Simple Strategies, Easily Learned, Powerful Results
What Thursday’s Action Tells
You
Yesterday’s market action certainly had some
month-end agendas working. NYSE volume expanded to 1.6 billion, which was the
run rate after the 240 million total volume at 10:30 a.m. ET. Up through noon,
the NYSE ticks would jump above +800 and then quickly drop to +200 or below.
There were three or four of these larger buy programs in succession. The TRIN
was running at less than .60 through 10:30 a.m., then when the SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) went from +4 to +16, TRIN was below .50 for that move, as the
buy programs dominated. The volume ratio was 59 and breadth -70 at day’s end.
The major indices hit their intraday highs by
11:10 a.m., with the SPX at 1004.59. (Guess they forgot about the
worse-than-expected Consumer Confidence number that the media empty suits talked
about all that day and evening.) Please!
That program-dominated move ending at 11:10 a.m.
was the end of the upside for the day. From 11:10 a.m. to 2:30 p.m., the SPX
traded in a very narrow range Slim Jim, essentially between 1004 and 1002. This
Slim Jim was resolved to the downside at 2:30 p.m., as the SPX traded down to
989.54, closing at 990.32, +0.3% on the day and right back to the midpoint of
the two-month trading range and also to the 20-day EMA pivot again. Hello?
The Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) closed at 9234, +0.4%, the
Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating) at 1735, +0.8%, with the
(
QQQ |
Quote |
Chart |
News |
PowerRating)s +0.9% at 31.70, and
the
(
SMH |
Quote |
Chart |
News |
PowerRating)s, which led the major sectors, at +1.9%. The XLB (basic industry
SPDR) was +1.2%, as the long bond proxy, which is the
(
TLT |
Quote |
Chart |
News |
PowerRating), sold off. That
has been the case for the past 10 days, as the XLBs have gained 11% low to high
and also points out the fact that some of the larger Generals have been changing
their weightings in that sector, which has been underweighted by most during
this rally.
From the index screens today, the main trend was
the decline in many of the healthcare/medical stocks, as
(
CAH |
Quote |
Chart |
News |
PowerRating) took a -15%
hit on earnings warnings for next year, and the Generals ran for the exits as
21.6 million shares traded vs. a 2.9 million 30-day average volume.
From our focus list,
(
PCAR |
Quote |
Chart |
News |
PowerRating) was the leader,
as it broke out of the trading range at +3.9% on more than double its average
volume. Daytrader wins, but looking at the weekly chart where the stock is +152%
since the October lows of 31 to yesterday’s 78 high, from a position standpoint,
I wouldn’t go near that with your money. Leave it to the momentum players who
haven’t learned their lessons.
It is on the daytrader’s focus list every time it
has a decent daily chart pattern only so you can catch a ride on the train as
the stock is pushed higher. The upward spiral works when “the order to buy
100,000 shares at the market runs into the sequence where the sales trader says
to the buy-side account, ‘You can buy 500,000 shares down 1/2.’ The response is
then, ‘No interest and cancel the balance of the 100,000 shares to buy at the
market.'” Stocks will be taken up to where the sellers are and vice versa,
so if price can be pushed higher on light volume, that has obvious benefits for
significant holders, but it makes no sense to push the extended stocks higher if
you have to buy too much stock doing it. Hedge funds play in this arena all the
time, and it usually all ends when you get a CAH-type situation and the Generals
and hedge funds go to the exits at the same time. Sorry for digressing, but
every now and then I miss that part of the “game.”
For Active Traders
Yesterday’s action was very rewarding for
daytraders. There was a futures-induced gap up opening, then the gap pullback,
which fulfilled the filter for the gap pullback strategy outlined in the seminar
video. In yesterday’s commentary, you were made aware to focus on the SPX 20-day
EMA as a pivot, and that’s exactly what happened. I have included the SPX chart
which highlights the gap pullback, which was to 988.85 on the 10:05 a.m. bar. On
the 10:25 a.m. bar (#1), you had a re-cross of the 20-day EMA to the upside
above 990.70 with entry above 991.15. The same E-mini entry was above 990.50.
This trade ran to the 1004.59 intraday high, and the game was over. 1005.36 is
the monthly R1 resistance level, and 1005.18 yesterday’s 2.0 volatility band.
The chart doesn’t show the rest of the day’s action in order to maintain
clarity, but from that high, a Slim Jim formed between 1004 and 1002 which gave
you a short entry below 1002 that traded down to 989.54 for a nice day
“easy rider.”Â
The cycle decline expected through July into
early to mid August has only seen a 962 low and instead has gone sideways for
two months. So, if for instance, Saddam gets nailed, they could break the SPX
above the 1015 levels, moving into the next zone of confluence starting at 1020,
which I will outline on Monday. With the two sons having bought the farm and the
United States hot on the old man’s tail, I don’t expect the shorts want to get
in front of the probable short-term reflex up if that happens.
With the program action I saw yesterday, it would
be no surprise to see some new-money program activity these first few days of
August. Trading the index proxies and futures on overreactions continues to
provide the best opportunities, and it doesn’t matter long or short.
Have a good trading day,
Kevin Haggerty
Â