Some Good Rebound Trades May Set Up Soon
NYSE
volume picked up yesterday to 1.38 billion,
a volume ratio of 21 and breadth -1015.
The Dow
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$INDU |
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PowerRating) ended -1.0% and closed at 8447, just above the low end of
the recent trading range. The Nasdaq
(
$COMPQ |
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PowerRating) was -2.2%, while the SPX
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$SPX.X |
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PowerRating) finished at -1.3%. Once again, the 890 magnet comes into play as
the SPX closed at 891.12. The current 50-day EMA and this 890 .618 retracement
level and monthly pivot have provided some excellent trading action for
short-term traders.
The sectors all finished
red, led by the semis following Micron Technology
(
MU |
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PowerRating) down. The
(
SMH |
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PowerRating)s
declined 6.7%, closing at 23.39. The best trade setup was the 11:00 a.m. ET
reversal bar right at the 2.0 volatility band, which was 23.42. The signal bar
low was 23.40 with entry above 23.55. The reflex was weak as it only carried to
23.70 before fading for the rest of the afternoon to close at 23.40. The .618
retracement to the 17.32 October low is 22.54, so the semis are entering a
higher probability trading zone. They led the way up, with an 80% gain for the
SMHs, and imagine that, not an analyst or market technician was on the positive
side. Those that trade outside the box away from the obvious herd mentality,
both fundamentally and technically, made big profits.
If the semis don’t hold
into the .618 retracement zone, then it is most likely that the major indices
will certainly decline below their .38 retracement levels to the October lows,
which they haven’t done so far during this rally. If the program traders are on
the sell side going into expiration, then initiating the program trades by
hitting futures will shake the tree as the major indices closed right at the
bottom of the trading ranges I mentioned yesterday.
The Iraq, Venezuelan and
North Korean news has gotten pretty heavy, so this path of least resistance will
only hold if the Generals spend some money and/or the programs are not on the
sell side today and Friday. If there is a quick air pocket down, it would set up
some good rebound trades going into the Christmas holiday. Stay away from those
NDX stocks that rallied big from below their $5.00 and $10.00 price tags if we
get a big reflex. Big cap stocks and/or index proxies only. The leading
indicator number today can also give the program traders some cover if it helps
their intended direction today and Friday. This is no time to be a hero with all
that’s going on.
I previously said there
was no edge for initial longs in that 940 – 965 zone, and the major indices
haven’t sold off enough relative to the 769 October low to give us any real
position edge here, other than maybe the year-end holiday bias which so far
can’t reach above the world news lid that has most people glued to the TV 24/7.
Have a good trading day.
Five-minute chart of
Wednesday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Wednesday’s NYSE TICKS