The Abnormal Is Normal

July 15, 2004
Kevin Haggerty

What Wednesday’s Action Tells
You

Thanks to the herd mentality and the media’s
accelerating the crowd’s emotion, it was simply an excellent trading day for
those of you who understand the “Core Framework” and my related
strategies. The
Generals ran for the exits in
(
INTC |
Quote |
Chart |
News |
PowerRating) on the biggest volume day, 284
million
shares, since the gap down on 09/22/00 of 309 million. The pressure will
remain
until they finish adjusting their weighting, and then some of the big funds
will
return to squeeze the shorts and replace some of the stock they had sold at
higher prices.

NYSE volume expanded to 1.46 billion, with a
volume ratio of 40 and 4 MA neutral at 51. Breadth was only -138 yesterday
in
spite of all the tech emotion. The semis led the downside, with the
(
SMH |
Quote |
Chart |
News |
PowerRating)
-5.3%, and we had an excellent day with the focus list energy stocks, as the
(
OIH |
Quote |
Chart |
News |
PowerRating) was +2.2%. All of your focus stocks had excellent moves with
trade-through entries as some of that tech money was moved to
energy.

For Active
Traders

You were ready for Trap Doors yesterday with
your
frame of reference in advance. Based on your e-mails, most everyone caught a
ride on the initial contra move, and some of you even caught the reversal in
the
direction of the open which came from defined levels. The
(
QQQ |
Quote |
Chart |
News |
PowerRating) opened
at
35.20, hit 35.10 on the next doji bar with entry above 35.18. The -1.28
volatility band was 35.15 and -1.5 volatility band 34.94. The 200-day EMA
was
35.25 and the contra move took price on a re-cross of the 200-day EMA to a
35.65
intraday high and right at the 240 EMA on the 11:35 a.m. ET bar. The contra
move
ended at the 240 EMA and price reversed, but not without giving you a 1,2,3
lower top short trend entry below 35.50, which was also below all of the 20,
60
and 240 EMAs.

There was a clear 8,3,3 stochastic negative
divergence as price made the higher high at 35.65 and the second touch of
the
240 EMA. There was also a volume divergence with price higher to 35.65, as
volume declined sharply. The 35.65 high was a narrow-range bar with a sharp
increase in volume, so you had many reasons to end your initial contra move
trade and take a short side trade. I will include the QQQ chart in Friday’s
commentary for your records so these kinds of setups can be easily
identified
for the future.

If you took the
(
SPY |
Quote |
Chart |
News |
PowerRating)/futures trade after
the
outside bar (second bar), your entry was above 111.36, at worst, and the
contra
move ran to a 112.39 intraday high which was right at the 816 EMA
(five-minute
chart) which is also the 34 EMA on the 120-minute chart. All of you
“523” trend
traders were aware of that I’m sure. In addition, 112.40 was the 89-day EMA
on
your daily chart.

This reversal was a 1,2,3 lower top with the
trend entry below 112.16, which traded down to a new intraday low at 111.12
vs.
the second bar’s 111.21 low. The same entry on the ESU4 was above 1109.50
which
ran to 1119.75 and the same 1,2,3 lower top short setup. Nice trade, Rob.

The most deeply discounted in the opening
time
period was the SMH, which hit a 32.92 low on the 9:50 a.m. bar vs. its -3.0
volatility band at 32.86 (using 34.68 as the previous closing price). The
contra
move was only +1.5% to 33.43 which was less than its relationship to the
SPY.
The SMH reversed and closed at 32.84.

I should also add that the SPX made an
initial
1108.75 low vs. the 1107.29 -1.0 volatility band. Three of the previous four
days’ lows were between 1106.71 – 1109.11, so this zone is an initial focus
today should price go red early. You obviously also had many individual
stock
Trap Doors at extended price zones, so if you didn’t play in the morning
game
yesterday, your problem is emotional, not trading/strategy.

Today’s
Action

Have a good trading day,

Kevin Haggerty

The Abnormal Is Normal

BUY THE FEAR, SELL THE GREED

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