The SMH Is The Trader’s Goldmine

What Wednesday’s Action Tells
You

The SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating)
traded in a 4-point
range
yesterday between 1075 – 1071 all day until 3:30 p.m. ET, when there was a
program spurt and the SPX traded from 1072.45 to a 1076.48 close.
Yesterday’s
range of 5.4 points was the smallest since the 11/11 4.8 point range (not
including the 1/2 day after Thanksgiving). The program activity will expand
that
range today, so there will be opportunity. There has been quite a bit of
range
trading the past eight weeks. From about 10/28 – 11/17, the SPX traded
1061 – 1045. From 11/17 – 11/24, it was 1049 – 1034. From 12/1 to 12/9, it was 1074 –
1060.
After that, there was a quick dip below the last range to a 1056 close, then
a
quick run to 1082, down to 1068 (the .382 retracement to 1553 from 769), and
now
yesterday’s 1076.48 close. That type of movement is very tough for momentum
traders to operate in, but excellent for those that buy the
weakness/retracements in an ongoing primary uptrend and look to compound
multiple moves for their returns, which I strongly recommend in any
timeframe.

There was nothing very significant in yesterday’s
market action, other than an oversold bounce in some of the retail stocks, like

(
KSS |
Quote |
Chart |
News |
PowerRating)
,
(
TGT |
Quote |
Chart |
News |
PowerRating)
and
(
WMT |
Quote |
Chart |
News |
PowerRating)
to name a few. If you follow my screens every
day, you saw that initial volume burst by the Generals on Tuesday, and then
price and volume again yesterday. TGT was a quick reflex off the 200-day EMA,
while WMT bounced from the .618 retracement level and KSS from a Fib extension
zone. The RTHs led the major sectors at +1.7%, well ahead of the SPX, Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating)

and Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating)
, each +0.1%, with the
(
QQQ |
Quote |
Chart |
News |
PowerRating)
s at +0.9%.








































size=2>

Thursday

12/11

Friday

12/12

Monday

12/15

Tuesday

12/16

Wednesday

12/17

color=#0000ff>Index

color=#0000ff>SPX

color=#0000ff>High

1073.63

1074.76

1082.79

1075.94

1076.54
color=#0000ff>Low

1059.05

1067.64

1068

1068.04

1071.14
color=#0000ff>Close

1071.21

1074.14

1068.04

1075.13

1076.48
color=#0000ff>%

+1.2

+0.3

-0.6

+0.7

+0.1
color=#0000ff>Range

14.6

7.1

14.8

7.9

5.4
color=#0000ff>% Range

83

91

0

90

99
color=#0000ff>INDU

10008

10042

10023

10130

10145
color=#0000ff>%

+0.9

+0.3

-0.2

+1.1

+0.1
color=#0000ff>Nasdaq

1942

1949

1918

1924

1921
color=#0000ff>%

+2.0

+0.3

-1.6

+0.3

-0.1
color=#0000ff>QQQ

35.27

35.28

34.74

34.87

34.88
color=#0000ff>%

+2.1

-0.1

-1.4

+0.3

+0.9
color=#0000ff>NYSE

color=#0000ff>T. VOL

1.44

1.18

1.46

1.51

1.41
color=#0000ff>U. VOL

1.23

754

516

925

752
color=#0000ff>D. VOL

185

414

928

557

598
color=#0000ff>VR

87

64

36

62

56
color=#0000ff>4 MA

54

54

56

62

54
color=#0000ff>5 RSI

85

68

56

64

66
color=#0000ff>ADV

2479

2142

1278

1947

1924
color=#0000ff>DEC

795

1134

2018

1359

1302
color=#0000ff>A-D

+1684

+1008

-740

+588

+622
color=#0000ff>4 MA

+324

+309

+301

+635

+370
color=#0000ff>SECTORS

color=#0000ff>SMH

+2.5

-0.1

-3.1

-0.6

-0.9
color=#0000ff>BKX

+0.8

+0.1

-0.6

+1.0

-0.2
color=#0000ff>XBD

+1.7

+1.2

-1.1

+1.0

+0.5
color=#0000ff>RTH

+1.3

-0.6

-1.8

+0.2

+1.7
color=#0000ff>CYC

+1.5

+0.6

-0.6

+0.6

+0.6
color=#0000ff>PPH

+1.4

+0.3

-0.7

+0.5

-0.3
color=#0000ff>OIH

-0.3

+2.7

-1.8

+0.8

-0.3
color=#0000ff>BBH

+1.5

+0.9

+0.1

+0.5

+1.7
color=#0000ff>TLT

+0.7

+0.2

-0.6

+0.5

+0.7
color=#0000ff>XAU

+2.9

+0.6

+1.1

-2.9

+1.3

For Active Traders

The
(
SMH |
Quote |
Chart |
News |
PowerRating)
s finished negative for the
fourth
day in succession at -0.9%, but this goldmine produced again. I have
included
the five-minute chart from yesterday which shows the Trap Door contra move
on a
re-cross of the 89-day EMA of 38.77 from the 38.66 low. The trade set up a
five-bar decline of -2.8% from the previous day’s high of 39.77. The 1.618
Fib
extension of the previous day’s up leg to 39.77 is 38.72, in addition to the
other confluence outlined in the Dec. 16 commentary. That was a sequence I
was
prepared for in advance, so it was easy to pull the trigger.

This contra move ran +2.3% from entry level
to
39.69, which is right at the 240 EMA as you see on the chart, and failed to
take
out the previous day’s 39.77 high on this first run. The move ended on a
doji
bar with an obviously significant volume of 1.9 million shares (marked on
the
chart). The 8,3,3 stochastic was rolling over with a small negative
divergence
above 80. The SMH reversed from 39.69 in the direction of the open down to
that
zone again with a 38.65 low (not shown on the chart). There was a long entry
on
another re-cross of the 89-day EMA and above the 1:25 p.m. signal bar high
of
38.80. This reflex made it to 39.17, closing at 39.04.

Net net, there were three excellent trading
opportunities to catch: long, short, then long. If you caught some part of
that
action, you are a happy camper. If you made all three trades, you were right
on.
Your volume principles of the narrow-range doji on a significant increase in
volume at the 240 EMA was a layup for you to reverse direction from the Trap
Door long entry because it gave you a tight stop with a good risk/reward,
plus
the fact that you’d already covered a nice move on the long side. This is
the
third long side reflex the SMHs have made from our zone, and the more it
bangs
around there, the weaker the zone becomes, so be alert.

Today’s
Action

The early futures are small green, and as I
have
said before, the December Triple Witch belongs to the Program Gang and
year-end
to the Generals, while traders are just looking for good intraday rides on
their
backs. I say Triple Witch because individual stock futures are simply not a
factor at this point in time.

Have a good trading day,

Kevin Haggerty

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