This Combination Works Best By Far

November 5, 2003
Kevin Haggerty

What Tuesday’s Action Tells
You

	Wednesday 10/29	Thursday 10/30	Friday 10/31	Monday 11/3	Tuesday 11/4
Index
SPX
High	1049.83	1052.82	1053.09	1061.44	1059.02
Low	1043.35	1043.82	1046.94	1051.84	1051.70
Close	1048.11	1046.94	1050.71	1059.02	1053.25
%	+0.1	-0.1	+0.4	+0.8	-0.5
Range	6.5	9	6.1	9.6	7.3
% Range	73	35	62	78	21
INDU	9775	9787	9801	9858	9839
%	+0.3	+0.1	+0.2	+0.6	-0.2
NASDAQ	1937	1933	1932	1968	1958
%	+0.2	-0.2	-.02	+1.8	-0.5
QQQ	35.32	35.39	35.15	35.77	35.55
%	-0.1	+0.1	-0.7	+1.7	-0.6
NYSE
T. VOL	1.52	1.62	1.40	1.36	1.34
U. VOL	988	799	763	1.02	485
D. VOL	513	803	654	318	836
VR	66	50	54	76	37
4 MA	60	64	62	62	54
5 RSI	67	64	69	78	62
ADV	2065	1647	1792	2270	1677
DEC	1179	1634	1418	984	1591
A-D	+886	+13	+374	+1185	+86
4 MA	+678	+803	+617	+614	+440
SECTORS
SMH	+0.9	+0.9	-0.5	+3.8	0
BKX	+0.5	+0.3	+0.2	+1.0	-0.2
XBD	+0.5	-0.2	+0.5	+1.5	-0.7
RTH	+0.2	-0.4	+0.1	+1.2	-0.8
CYC	+1.0	+1.2	0	+1.0	+0.2
PPH	-0.7	-1.0	+1	-0.1	-1.3
OIH	-1.4	+0.5	+2.4	-2.0	+0.4
BBH	-1.3	-0.2	+0.9	-1.0	-0.5
TLT	-0.9	-0.4	+0.9	-0.5	+0.6
XAU	+1.8	-1.8	+0.5	-2.1	+0.8

table legend

After a six-day up move to new highs and also
into a zone of confluence, in addition to entering a time zone, it should be
no
surprise if the market churns or evens reverses some. If you refer to your
daily
SPX chart, you see that the swing point high on Sept. 8 and the one on Sept.
18
were both similar inside bar patterns which resulted in short-term
retracements
of four and seven days. There is currently a negative divergence in the
Chande
(20) Momentum Oscillator during this six-day rally to new highs, so that
also
puts you on alert.

For Active
Traders

The opening gap down for the major indices
provided opportunity once again for daytraders. I have included the
five-minute
charts for both the SPX and
(
CY |
Quote |
Chart |
News |
PowerRating) which highlight the First-Hour Reversal
Strategies from yesterday. First, look at the SPX chart. You’ll see that it
traded down to its 240 EMA and intraday low of 1052.94 on the 10:00 a.m. ET
bar.
(You have seen that many times before.) This proved to be the signal bar for the
reversal contra move. (Remember the 90 – 60 rule.)

In addition to the 240 EMA, there was
confluence
with the 2.0 Fib extension of the Monday leg up to the 1061.37 high. The 1.0
volatility band was just below at 1051.10. Entry was above 1053.86, and it
ran
to 1058.12 by the 11:35 a.m. bar to the 1061.37 high and then resumed the
direction of the open, which it does on this kind of early trading about 60%
of
the time, while there is a contra move 85% – 90% of the time. You get the
house
edge twice with the First-Hour Reversal Strategies, and I don’t mean wasting
your time with scalping.

The CY trade was an excellent opening
reversal as
the semis were clearly showing better relative strength on the early down in
the
major indices. CY opened at 22.42, making a 22.45 high on that opening bar
(O),
which was also the previous day’s high, and above 22.51 would be a new rally
high from the October lows. Significant positive volume came in on the next
two
bars (1 and 2) and CY was on its way. You took the entry above 22.45, or
else
the Flip Top entry above 22.50. It didn’t matter. The stock traded up +5.3%
to
23.50 from entry and topped out there before trading down to a 22.75 close
along
with the afternoon downtrend for the major indices.

If you are the kind of trader that takes an
initial 50% position on first entry, then adds to it with lesser shares on
the
next two reversals up in your favor, then this trade played right into your
hands. I marked those two add-on entries on the chart. The key point is CY
was
an opening reversal trade that had a very strong daily chart setup, and that
combination works best by far.

For Today

The early futures are red as I do this at
6:45
a.m. ET, with the S&Ps -4, Dow -34 and Nasdaq -4, but obviously it’s
early in
the funny money pre-market futures game. The SPX closed yesterday in
the
bottom 25% of the range at 1053.25 and below the midpoint of 1056.64 from
the
previous day. That midpoint becomes the initial pivot today for daytraders.
Yesterday’s low was 1051.71, and the 1050 level is minor support developed
since
Oct. 14, which becomes another early pivot. The 1.0 volatility band is
1045.34
and 1061.15 above. The 1.0 volatility band range has narrowed to less than 8
points, as there is certainly no wall of worry when you see that the AIV
(Average Implied Volatility on the at-the-money call and put) has been
running
below 15 for the past five to six days. If the futures remain red and we get
the
early down opening, the SPX can start to form an RST below yesterday’s low
of
1051.70, and ideally around the 1.0 volatility band.

Have a good trading day,

Kevin Haggerty

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This Combination Works Best By Far

BUY THE FEAR, SELL THE GREED

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