This Has Been The Best Tech Play In The HOLDRs
What Friday’s Action Tells
You
After Thursday’s gap up by the
(
SPY |
Quote |
Chart |
News |
PowerRating) from
a
104 close on Wednesday to a 104.94 high on the first bar, there was a 50%
gap
pullback to 104.47 which fulfilled the gap pullback strategy filter
explained in
the First Hour strategy module. From there, the SPY re-crossed the 104.70
previous rally high, then traded to Thursday’s intraday high of 105.21 on
the
11:35 a.m. ET bar. That was it for the emotion, as the SPY traded down to a
103.83 intraday low before closing at 104.28. That was a lot of noise and
emotion, but the net net was that the SPY closed at 104 on Wednesday and
104.28
on Thursday, almost unchanged. “The beat goes on.”
Needless to say, there was a good long side
trade
in the first hour that day and the next one was a short side entry that
caught
the afternoon downtrend. Both were defined strategies from the
seminar/module
material and had objective entries, not emotional ones that so many traders
can’t seem to overcome. You will be far more successful with structure than
momentum emotion.
Moving on to Friday, it was essentially a
non-event with no real institutional selling entering the market, as
evidenced
of NYSE volume of just 1.1 billion, and the volume didn’t break 1 billion
shares
until the runoff after 4:00 p.m. The volume ratio was exactly neutral at 50
and
breadth was slightly positive at +305. The SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) at 1038.06
and
Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) at 9675 were virtually unchanged from Thursday, as each
gained
+0.06%. The SPX lost less than a point and the Dow was just -5
points.
There was a positive divergence in
technology, as
the
(
QQQ |
Quote |
Chart |
News |
PowerRating)s and XLKs were both +0.9%, with the Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating)
+2.2%
and the
(
SMH |
Quote |
Chart |
News |
PowerRating)s +1.7%. Most of the other sectors finished red in line
with
the SPX and Dow, while the OIH was +0.5%.
For Active
Traders
From 10:30 a.m. – 4:00 p.m. on Friday, the
SPY
traded in a narrow range between 104.40 – 103.93, jumping up to a 104.57
close
in the after hours trading. Thursday’s SPX breakout of the previous rally
high
of 1040.29 ran to a 1048.28 intraday high and then re-crossed it on Friday,
closing below it at 1038.06. That puts 1040.29 in play both ways today
depending
on the opening time period. FYI: That 1048.28 new rally high was in
conjunction with a declining 20-period momentum, which is also a negative
divergence.
I have included in today’s commentary a chart
of
the SPY from the Aug. 6 low of 96.34 to Thursday’s 105.21 intraday high. The
rally to 105.21 came off the .618 retracement to the 96.34 low and that is
labeled on the chart. On Thursday, as I mentioned above, there was a gap
pullback strategy entry and then an RST sell entry below 104.82 which was
taken
after the 105.21 high following the gap pullback trade. The RST is an
expanding
volatility pattern as you learned from the seminar materials, and it isn’t
in
any of the modules. I underlined the larger RST sell pattern swing points to
highlight the symmetry. The intraday entry traded down a point to 103.82
before
edging up into the close. The same RST pattern is on the daily chart for the
(
DIA |
Quote |
Chart |
News |
PowerRating)s and QQQs, but in all three cases, the primary filters are still
positive, so intraday entries only should be taken and only should be kept
if
there is a sufficient profit on the close.
Those of you that just have the 1,2,3 module
see
that there is also a 1,2,3 higher top pattern for all three indices on the
daily
chart with negative divergences in the 20-period momentum. Very often 1,2,3
higher tops or 1,2,3 lower bottoms are also RSTs which makes it even better
when
that happens. This means that the previous rally highs for all three major
indices are in play, in addition to below the low of the high day, which
didn’t
happen on Friday.
This rally is now 12 months old from the
October
2002 bottoms in the major indices and for some major sectors like the SMHs.
Both
the SPY and DIAs are up +36% for the 12 months, while the QQQs are +78%, XLK
+73%, and Nasdaq +75%. The Russell 2000, using the
(
IWM |
Quote |
Chart |
News |
PowerRating) proxy, is +63%,
while the
(
MDY |
Quote |
Chart |
News |
PowerRating), which is the mid-cap proxy, is +46%. The other three
sector
SPDRs after the XLK are the XLB, which is +41%, XLF, which is the
financials,
+45%, and XLE +33% (which actually bottomed on July 24 ’02).
The best technology play in the HOLDRs has
been
the SMHs which gained +124% to the 38.85 intraday high on Sept. 8. FYI: I
must
point out that the XLKs are often overlooked as a position play, but give
you
about the same kind of move as the QQQs without all of the hedging and
option
volatility that accompanies the QQQs, not to mention the lower dollar
price.
This corner has already stated several times
how
index proxy gains will be protected, just as the semis have been. I point
out
the 12-month gains in the various market vehicles because the 12-month
period
ending in October is the year-end scorecard for many of the largest mutual
funds, and barring overt news or world events, the portfolio managers will
try
to make most of the gains hold up the best they can. It’s not about the next
economic report, etc., it’s about the business of getting the bonus for the
year, and that means try and hold them up. Twelve-month positive gains
ending
October will also have a significant effect on the mutual funds’ track
record,
which is their primary marketing tool for getting more of your money, as
retail
inevitably chases performance.
Expanding volatility is not a surprise during
what the media incorrectly labels “the earnings season.” In
reality, it is
really the “earnings management season,” and unless you are a
professional, you
can’t play in that league, so stay with the technical side as your primary
tool.
I will give you some examples of what I mean over the next few days.
Remember,
our analyst friends are the same ones that were giving you the sell stories
at
the lows, just following price and emotion down like the majority of retail
clones. I don’t say that because I am cynical, but because I record and save
most of the “profound” statements from the media, market
commentators and
brokerage firm analysts. When you’ve done that long enough, you realize how
useless it all is on balance, and you become much more technical in nature.
I am
just trying to save you some time.
Have a good trading day,
Kevin Haggerty
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