Stop Following The Herd
What Monday’s Action Tells
You
The market action ranged out from 11:00
a.m. –
4:00 p.m. ET, with the SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) trading from 1085 – 1079, the
(
QQQ |
Quote |
Chart |
News |
PowerRating) 34.07 – 33.78, and the
(
SMH |
Quote |
Chart |
News |
PowerRating) 31.60 – 31.20. These ranges are
the
opening focus on Tuesday. The SPX closed at 1084.07, -0.2%, and the Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) was unchanged, with the QQQ 34.06, -0.4%.
NYSE volume was 1.41 billion shares, but the
key
numbers were the volume ratio at 29 with the 4 MA finally short-term
oversold at
27. Breadth was -1135 and that makes the 4 MA also short-term oversold
at -1200.
There has been a positive divergence over the past five days, in several
indicators I use, including my composite, vs. the lower prices in the major
indices and SMH. Because of this action, the long delta neutral straddles
were
adjusted yesterday to a delta long bias and will be increased if the price
action is favorable on Tuesday. This decline has been very positive for
these
positions, including the increase in implied volatility, especially for the
QQQs
and SMH. Remember, at the time they were put on, everything looked rosy and
implied volatility was at or close to 52-week lows and the crowd was all
bullish.
However, the “Core Framework” that
you learned at
the seminar
came into play, as it always does, because that is how markets
move.
The QQQs have taken out the 34 magnet low with a 33.70 low yesterday, and
that
is a good thing as the RST comes into play for those of you that understand
the
entry criteria. The
(
SPY |
Quote |
Chart |
News |
PowerRating) has to take out the 106.06 low and it hit a
108.21
low yesterday. For the
(
IWM |
Quote |
Chart |
News |
PowerRating), it is the 105.51 low vs. 105.71 yesterday.
For
the DIA, it is at 98.81 with Monday’s low at 99.31. The Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating)
had already taken out the 1865 low, but has not had a close above the high
of
the low day yet, but you RST players are aware of intraday entry tactics on
any
of these RSTs.
The XLB (basic industry SPDR) is now playing
catch up to the SPX and closed at 25.22 after an intraday low yesterday
25.07
vs. the 200-day EMA at 25.04. Of the major XLB components,
(
PX |
Quote |
Chart |
News |
PowerRating),
(
IP |
Quote |
Chart |
News |
PowerRating)
and
(
APD |
Quote |
Chart |
News |
PowerRating) have the better chart positions, in addition to the XLB. Defense
stocks like
(
NOC |
Quote |
Chart |
News |
PowerRating),
(
LMT |
Quote |
Chart |
News |
PowerRating),
(
BA |
Quote |
Chart |
News |
PowerRating) and
(
GD |
Quote |
Chart |
News |
PowerRating) should be on the focus
list also having pulled back to their 20- and 50-day EMAs, in addition to
(
RTN |
Quote |
Chart |
News |
PowerRating) at the 200-day EMA.
The energy stocks remain on the focus list in
the
current environment, in spite of the toppy action as evidenced by the
composite
numbers I gave you last week, as they have pulled back to their daily chart
20-
and 50-day EMAs. Currently in that position are
(
WFT |
Quote |
Chart |
News |
PowerRating),
(
SII |
Quote |
Chart |
News |
PowerRating),
(
SLB |
Quote |
Chart |
News |
PowerRating),
(
CAM |
Quote |
Chart |
News |
PowerRating),
(
NE |
Quote |
Chart |
News |
PowerRating) and
(
RDC |
Quote |
Chart |
News |
PowerRating), in addition to
(
DO |
Quote |
Chart |
News |
PowerRating). Other energy
stocks
for your list are
(
AHC |
Quote |
Chart |
News |
PowerRating),
(
APC |
Quote |
Chart |
News |
PowerRating) and
(
APA |
Quote |
Chart |
News |
PowerRating).
(
INTC |
Quote |
Chart |
News |
PowerRating) traded 81.2 million shares
yesterday
vs. the 64.3-million-share average and closed at 22.97, +1.3%, in a dynamite
triangle. That was the most volume in the last six days, so maybe the
Generals
will get it going for a couple of days and give short-term traders a ride
along
with the SMH.
The initial focus for daytraders today is the
resolution of the previously mentioned ranges from 11:00 a.m. – 4:00 p.m.
yesterday. Also, this is the first time since the October 2002 lows that the
weekly 5 RSI is below 20 and prior to October 2002, it was July 2002. The
SPY
108.06 low needs to be taken out for the completion of a five mini-leg move
down
from 116.95. In fact, the .236 retracement to 77.07 (October 2002 low) is
107.54
and it hasn’t even declined that far yet. The .382 retracement is 101.72,
and
for the SPX, that is 1012 (13% decline from 1163) high-to-low. The SPX .236
retracement to 789 is 1075 vs. the previous 1076 low, and the .382
retracement
is 1020.
Net net, the SPY has only retraced -6.5% on a
closing basis from 116.38 to 108.75.
Have a good trading day, and stop following
the
herd.
Kevin Haggerty
