The Frame Of Reference To Start The Week
What Friday’s Action Tells
You
The SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) has ranged between
1125
and 1113 for the past five days, closing Friday at 1123.92, +0.9% on the
week
and +0.5% for the day with acceleration in the last 90 minutes. The Dow
[
(
$INDU |
Quote |
Chart |
News |
PowerRating) was +0.2% on Friday and +0.6% on the week to 10,313. Due
mostly
to the +10% three-day move in the
(
SMH |
Quote |
Chart |
News |
PowerRating) — semiconductors — from the
.618
retracement zone (28.19) to the October 2002 17.32 low, the
(
QQQ |
Quote |
Chart |
News |
PowerRating) closed
at
35.12, +1.5% on Friday and +2.7% on the week. The Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating)
closed
at 1894, +2.7% for the week and is +8.2% from the price zone, which is the
.50
retracement to the October 2002 low of 1754. The QQQs are +8.6% from the
.382
retracement zone to the October 2002 19.76 low. Those are price zones which
were
anticipated and acted on when most everyone was bearish.
Friday’s market action was early up with good
entries for daytraders, and then the major indices went sideways until the
2:30
p.m. – 4:00 p.m. ET mark-up into the close.
NYSE volume remains low at 1.27 billion,
which is
also the average for the last week. The volume ratio was 59 and breadth
+708,
both of which are weaker than the price action on Friday.
The sector action last week was led by the
semis,
with the SMH +7.2% and +8.1% on Thursday and Friday. This is the second move
off
the .618 retracement zone, and as noted in the 09/08 commentary, the SPX
upside
can’t be sustained without chips moving up. This divergence of long SMH and
short SPY has narrowed with favorable results. The other positive factor
last
week was the XBD, +3.7% on the week and +1.7% on Friday, breaking out of an
11-day range just above its 200-day EMA. It is very positive when semis and
brokers lead.
The other component is the basic
industry/cyclical stocks. The CYC closed at 696.04 on Friday and was -1.2%
on
the week, but has remained above the lines while the other indices were
retracing below their 200-day EMAs. New rally highs would be above
714.
For Active
Traders
The first-hour strategies got you on the
early
ride up. For the SMH, it was the opening reversal above 29.33 and all of the
EMAs. This corner was gone after price reached the 2.0 volatility band and
2.618
extension zone on the 10:40 a.m. bar. Why? To be flat going into the
weekend.
Price declined to 29.85 and then went on to new highs after 1:30 p.m.,
hitting
30.56 before closing at 30.36. When the SMH hit 30.27, it was +3.1% on the
day,
and +9.0% in three days.
The QQQ also gave you the opening reversal,
trading up to the resistance and staying their until the 2:25 p.m. move to a
35.19 high and 35.12 close.
The initial SPX trade was the Trap Door from
the
480 EMA and 1114 .618 retracement zone. When managing the trade, you
anticipate
the current retracement levels, which were 1118.66 – 1119.82. On the second
SPX
chart, you see how the trade played out. The Trap Door entry reversed in the
retracement zone and pulled back to 1115.70. Depending on your view, you
either
sold 100% of your position in the retracement zone or sold 50% and moved
your
stop to breakeven. The stop was a point on the futures, and the trade moved
3.8
– 4:1 above risk. The retracement to 1115.70 set up a 1,2,3 higher bottom
(not
labeled), so you had another decision to make from the long side. Price
traded
to 1120.18 on the 1:20 p.m. bar, and this corner went flat as the SPX traded
to
1118.50 before accelerating to the 1125.26 intraday high and 1123.92
close.
Today’s
Action
Last week the SPX ranged between the two
current
significant .618 retracement levels of 1114 and 1124. Daytraders got
opportunities both long and short, as it should be. If price pushes higher
this
week, the SPX levels are the upper channel down trendline, extended standard
deviation zone, and the .786 retracement to 1163.23, which is a range from
1135
– 1142 and just a +1.4% move.
The QQQ closed at 35.12, which is also the
.50
retracement to the 37.90 swing point high. The .618 retracement and
three-month
2.0 standard deviation band is from 35.75 – 36.
The SMH is +10% low-to-high in three days
from
27.78 – 30.56. The previous low range close is 31.40 and the 50-day EMA is
31.43.
You have a general frame of reference to
start
this week, and now we can just react to the price action.
Have a good trading day,
Kevin Haggerty
