This First Hour Strategy Enabled You To Catch Yesterday’s Decline
What Thursday’s Action Tells
You
It was a bonus day for traders as the major
indices had a trend-down air pocket following the basic First Hour strategy
Flip Top pattern. Price accelerated through all of the longer-term averages
which you had prior to yesterday’s opening. There was no threat of getting
stopped out all the way down to the 108.28 SPY close and SPX close at 1080.70.
The rising prices on declining volume into month end and the artificial price
action on Monday with the increased terror warning made the indices vulnerable
to an air pocket. NYSE volume was only 1.4 billion as the Generals were not to
be found on the buy side. The volume ratio was just 12 with 1.2 billion down and
only 159 million shares up. Breadth was -1481. The 4 MAs are now 37 and -315 so
there is more room. Both the SPX and Dow declined -1.6% while the Nasdaq and QQQ
were -1.8% and -1.9%. All the primary sectors declined between -1.2% (SMH) and
-2.0% (CYC). There were new lower closes for this decline in the SPY, DIA and
QQQ while the SMH closed at 31.72 vs its previous low close of 31.40 on 7/28.
The intraday low was 30.76 on that same day. The .50 retracement between the
45.78 bull market high and 17.32 10/02 low is 31.55 and price has now formed a
17 day trading range at this retracement zone.
The SPY made its high of 116.95 on 3/5 while the
SMH peaked on 1/12, leading the SPX and Dow to the downside. Any positive
divergence here by the SMH from this retracement zone would be an early read on
any SPX reversal. The XLB, XLI and XLE (sector SPDRs) still remain above
previous retracement lows at 200-day EMAs
For Active Traders
The SPY 5-minute chart is included today which
started yesterday’s decline from a Flip Top breakout to the downside below all
of its 20, 60 and 240 EMAs. That entry below 110.18 was a no-brainer as we have
been pressing the short side for the past several days. You can see the
acceleration at the various levels I gave you in yesterday’s commentary. The
extent of the decline is the luck part of it, but taking a First Hour strategy
defined pattern below all of its EMAs was part of your trading plan (or should
have been).
For Today
It’s the first Friday of the month jobs dance at
8:30 AM so that will determine the
First Hour strategies. Yesterday’s air pocket for the SPY and 108.40 close
put it below its 5-day, 5-minute -2.0 std deviation band of 108.50 with
the -3.0 band at 108. The 3-month -2.0 band is about 107.90 with the -3.0 band
down at 106.10. Because of the 3-day decline approaching extended levels don’t
get too aggressive on continuation shorts (this corner will stick with
retracement shorts only today and will play any more downside from the long side
for the intraday reflex.
Have a good trading day and have a great weekend,
Kevin Haggerty
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