Slim Jim SPX/NDX

• May 7, 2002
• Kevin Haggerty

In the
May 1 text titled “A
Ladder To Watch,” I
discussed the first level to expect some resistance or churning on any reflex
rally. We got the reflex from the 1065 level on the SPX
(
$SPX.X |
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PowerRating) on May
1, and the 1089 level then proved to be the end of the reflex on May 2 with an
intraday high of 1091. It pays to look at the numbers and be aware of them.

Yesterday with less than
900 million shares trading by 3:00 p.m., the SPX traded through 1065 at 3:10
p.m. with NYSE ticks immediately going -800 and then some. The SPX closed at
1053, -1.9%, the Dow
(
$INDU |
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PowerRating) -2.0%, led by IBM
(
IBM |
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7.0%, and the NDX
(
$NDX.X |
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PowerRating) -2.5%. 

NYSE volume was light at
1.1 billion shares, a volume ratio of 17, and breadth -1130. The Nasdaq
(
$COMPX |
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PowerRating) traded 1.7 billion shares, the lightest of the past five days,
with a volume ratio of 14, and now has a three-day average volume ratio of 19,
extremely oversold. Breadth was -1174. The
index closed at 1578, -2.1% for the session.

In the sectors, the
(
$SOX.X |
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PowerRating) ended -1.5%, but
(
KLAC |
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(
AMAT |
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(
NVLS |
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green right into the bell, as was
(
MCHP |
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PowerRating). The SOX, as I previously
mentioned, is forming an RST, as are KLAC, NVLS and AMAT. 

In the May 1 text, I also
said you know where I stand on further decline/retest after any reflex rally. It
was hardly much of a reflex rally, but with the further price decline we are
getting right now and the market can certainly give us an air pocket down to set
the table for a very tradable rally. The Nasdaq Composite is closing in on the
confluence of numbers around 1540. The SPX is within kissing distance of the
.618 retracement to the September low at 1033, and the .786 retracement at 1013
is below that. The
(
QQQ |
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PowerRating)s are just a-point-and-change above their September
lows. The
(
SMH |
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PowerRating), which is my preferred vehicle of choice for any rally,
closed at 37.30, approaching the .618 retracement zone just below at
36.05. 

Anyone who is daytrading
the SPX and NDX had a homerun trade yesterday. The SPX broke out of a 2 point
Slim Jim (1072-1070) on the 1:25 p.m. bar and traded down almost 18 points to
close at 1052.67. The Slim Jim breakout was also below all moving averages. It
was a textbook trade. It doesn’t get any more defined than that. If you do trade
the S&Ps, but didn’t take the trade, then you should reevaluate what you’re
doing. 

We are in the same
position today. The good setups will develop on the intraday charts. My focus
will be on SMHs and related semis forming RSTs, in addition to
(
XLK |
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PowerRating)s, which
closed below September’s low of 17.62 yesterday at 17.46. If you look at a daily
chart, you will see that this leg down will equal the first leg down at 17.31.
The 2.0 standard deviation from a longer-term average price line is 17.05, and
the 3.0 standard deviation is 15.95. Some will fade this level on a percentage
entry buying strategy, some will wait for a reversal of the 17.62 low, and
others will wait for a close above the high of the low day, which would complete
a large RST pattern. Either way, the highest probability is to be involved at
these levels with a plan.

FYI: The 2.0 standard
deviation for the SPX right now is about 1015, which is also the .786 zone, with
the .618 retracement at 1033. The 1.0 standard deviation for the SPX is 1052,
and the February rally from 1074-1174 was from the 1.0 standard deviation level.
I also will remind you that the SPX is setting up for a second entry RST that I
am sure you seminar veterans can see. 

Have a good trading day.

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

Five-minute chart of
Monday’s NYSE TICKS