The Most Significant Thing About Last Week’s Action…

September 15, 2003
Kevin Haggerty

What Friday’s Action Tells You

In the sectors, it was all about the smokestacks,
with the XLB +1.6%, led by the chemicals. The BKX and XBD were market
performers, while the RTH was flat and has declined -6.2% from a 91.30 high
eight days ago, closing at 86.95 on Friday. The
(
SMH |
Quote |
Chart |
News |
PowerRating) closed at 36.96,
+0.6%, on 10.8 million shares following two record volume days — 22 and 21
million shares — where the SMHs traded down to 35.39, or -8.9%, to Thursday in
just three days. That 35.39 low quickly reversed after the emotional selling
abated, trading up to 37.12 and closing at 36.72, which was positive action. It
also re-crossed its 20-day EMA of 36.19. Friday’s low was 36.10, then re-crossed
the 20-day EMA and closed at 36.90, leaving a positive daily chart setup for
Monday. NYSE volume was lighter on Friday at 1.2 billion, volume ratio 59, and
breadth +624.

The most significant thing about last week’s and
Friday’s action was the pullback to rising 20-day EMAs for the major indices,
including some major sectors. This has resulted in some positive daily chart
setups to focus on today.

For Active Traders

Friday’s early SPX decline to a Trap Door setup
was a “no brainer,” as one seminar veteran e-mailed me on Friday, as he took a
nice chomp out of it, ringing the register. The SPX traded down to a 1007.71
intraday low into our favorite 10:00 a.m. ET time period, set up, then reversed.
The 1.0 volatility band was 1007.50, and it was also extended on the short-term
standard deviation bands. When the SPX took out Wednesday’s 1009.74 intraday
low, it was the fifth point of an RST buy setup in progress. Entry for the RST
was above 1009.62, and then the SPX also re-crossed the 20-day EMA, which was
1009.87 on Friday, trading up to a 1019.64 high. You had a good sequence that
lent itself to a high-probability trade. There were volatility bands, short-term
standard deviation extension, RST reversal pattern, Trap Door pattern at a key
time period, followed by a re-cross of the 20-day EMA. All of these sequences
are covered in detail in the seminar material.

When the SMH retraced to the 35 -36 zone again on
Thursday, they were a prime focus once more. On Friday, the SMH gave you .618
retracement to Thursday’s 35.39 low and then traded up to a 36.96 close from the
retracement to 36.10, also re-crossing the 20-day EMA of 36.19 on the reflex up
into the close.

Today’s Action

For today, the SMHs closed in an inside-bar
pattern in the top of the range on Friday, making the daily chart breakout entry
above Thursday’s 37.12 high. Any early down that takes the SMHs around the 36.19
20-day EMA might also provide opportunity if the major sellers from Wednesday
and Thursday don’t return.

The SPX made a four-day retracement to the 20-day
EMA, which is now 1010.30, closing at 1018.63, with continuation breakout entry
above 1019.68. which is Friday’s high, and the 20-day EMA right below. For the
(
SPY |
Quote |
Chart |
News |
PowerRating), it is above 102.64, with the 20-day EMA at 101.62. For the
(
DIA |
Quote |
Chart |
News |
PowerRating),
it is above 95.20, with the 20-day EMA at 94.54. The
(
QQQ |
Quote |
Chart |
News |
PowerRating)s closed at 33.82
with breakout entry above 33.84 and the 20-day EMA at 33.14. You now have a
frame of reference for the major indices.

In the sector HOLDRs, you have the RTHs which
retraced to the 50-day EMA on Friday, closing in the top of the range at 86.95.
Friday’s high was 87.10 with the 50-day EMA down at 85.80. The BBHs are sitting
in a cup-and-handle for you O’Neil followers, with entry above 138. For those of
you that trade small-cap stocks, the
(
IWM |
Quote |
Chart |
News |
PowerRating) Russell 2000 iShares, which have
outperformed the S&P and Dow, has breakout entry above 101.80, having closed at
101.41. The 20-day EMA is down at 99.38.

I am doing this commentary Sunday night for
Monday, so I don’t know what the morning futures reaction brings, but I see that
Vice President Cheney was out pounding the political war drums on Sunday with
4.0% GDP and cutting the deficit by 50% in five years. Net net, Clinton had a
glass house surplus, as most of it was a pro forma assuming future events/pie in
the sky, and I would assume Cheney falls into the same category. Politicians
make some of our renowned corporate outlaws seems like angels, and yet they get
away with it.

Be careful on any early breakout through Friday’s
highs, unless the dynamics are compelling. Take no more than partial entry on
any first entry breakout trade, and don’t take the first or second bars.

Have a good trading day,

Kevin Haggerty

The Most Significant Thing About Last Week’s Action…

BUY THE FEAR, SELL THE GREED

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