This Trade Was In Your Trading Plan
What Thursday’s Action Tells You
The market action was mostly sideways
following the thrust day, which you have seen many times before. The SPX
(
$SPX.X |
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PowerRating),
at 1020.24, the Dow
(
$INDU |
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(
COMPX |
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finished +0.2%, while the
(
QQQ |
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PowerRating) at 33.26 was +0.3% and the SMHs +0.6% after
being up close to +2% during the first hour. The sectors all finished green
except the BKX, which was -0.2%. For the rest of the sectors it was the BBH,
+1.6% XAU +1.4% and RTH +1.1% which is now +3.9% for the two days.
NYSE volume dropped off to 1.2 billion, the volume ratio is still positive at
66, and breadth at +669. Obviously no real selling by the Generals into
Wednesday’s big up-day. There were no real significant threads regarding price
and volume in my S&P 500 screens after yesterday’s action. In the HOLDRs, the
SPY volume dropped to 45 million, the QQQs to 84 million, while the SMH traded 9
million vs. its 11 million share average.
For Active Traders
The best trade in the major indices were the Trap
Doors on the downside move into the 9:45 AM bar and subsequent rally to the
10:10 AM bar. From there, its was pretty much sideways into the close. The SPY
opened down, making an 101.64 intraday low on the 9:45 AM signal bar, which
closed in the top of the range, reversing the initial three bars’ closes. Entry
was above 101.88 (50-day EMA in play again) and the trade only carried to
102.48, which was right to the .618 retracement zone to the 104.70 March rally
high. Position exited from the 100.76 previous entry, which was the high of the
low day after an eight day retracement to the 89-day EMA (see
Oct 2 commentary).
If you trade the E-minis, your Trap Door entry
was above the 9:45 AM signal bar high of 1014. It doesn’t matter — SPY or
E-mini — the same strategies apply as they are both just derivatives of the SPX
cash index. The carryover trade was exited into the .618 retracement zone to the
104.70 high for a couple of reasons. One is that today is the media circus for
the jobs report on the first Friday of every month. Two is that the entry level
was not, from what I call a longer-term position entry spot with a good
risk/reward which would be an add-on to positions bought at much lower prices,
so why fool around? Therefore, it was a two-day chop and onto the next one.
The answer to your question “Why not hold until stopped?” is because of a
potential erratic move from the jobs report and the fact it might just churn at
the .618 retracement zone for a day or so. There is always another short-term
2-3 day opportunity after reactions.
I have included a 60-minute chart of the SPY
showing the .618 retracement zone with seven actual 60-minute bars churning in
the zone. 102.18 is also the initial June 17 trading range high. I have also
included the daily chart of the SPY, which outlines the 1,2,3 higher top with a
negative divergence in the 12, 26, 9 MACD (I use the 8, 17, 9 for buys and 12,
26, 9 for sells on all daily charts). This tells me there is a potential for
lower prices this month, and a better position entry from, for example, the
12-month EMA of 40-week moving average zones (see Oct 1 commentary).
The trade we anticipated in yesterday’s
commentary to be the best opportunity turned out to be just that. The SMH opened
at 34.98 just below the 240-EMA, then re-crossed it above 35.10 on the first
bar, trading up to an intraday high of 35.94 by the 10:10 AM bar, another +2.4%
move from entry, which is the fourth +2.3% – 2.5% move since hitting the 34.50
confluence zone. Hope you took the trade because we anticipated it and had it in
the trading plan.
Today’s Action
The futures are quiet prior to the 8:30 AM media
jobs circus and the gang is ready to play a game with the futures if the numbers
are off by a little, while good trader are just waiting to get involved on any
over-reaction and will be on the same side as the market makers and specialists.
That’s what it’s all about for daytraders.
After the first hour today it might be the golf course as the sun is bright here
and Winter is coming but the market will remain as will the daily reactions that
feed the trader. Next week I will start to show you anticipated longer-term
position trade setups that would have a good risk/reward with entry at the
lowest common denominator If you get more than 3-4 good position entries in a
year, you are lucky, so you must be ready when they surface, and now is the time
to anticipate them.
Have a good trading day,
Kevin Haggerty
