Tradable Volatility Excellent For Sequence Traders

  • May 20, 2004
  • Kevin Haggerty

What Wednesday’s Action Tells
You

The market action was bizarre for most, but
not
for those who utilize sequence and have the correct core framework to work
against. It was too much early emotion up for the major indices, with the
SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) trading to an intraday high of 1105.93 on just the 10:35
a.m. ET
bar from Tuesday’s 1091.67 close. The
(
SPY |
Quote |
Chart |
News |
PowerRating) hit 111.18, having opened up
at
110.46 from the previous 109.65 close. This move triggered first-hour
strategies
within an extended sequence zone, relative to the short-term market action
which
I will highlight in the “Active Traders” section. The day ended
with a program
futures-induced knife down from the 2:10 p.m. bar into the SPX 1088.67
close,
-0.3%, the same as the Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) at 9938. The Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating)
ended flat at 1898 after trading intraday to 1936. The
(
QQQ |
Quote |
Chart |
News |
PowerRating)s closed at
34.69, almost unchanged from the previous 34.73 close and 200-day EMA.

NYSE volume was 1.54 billion and with the up
and
down spikes, the volume ratio, as you would expect, finished neutral at 52,
as
did breadth at +235.

A few of the primary sectors hung on to a
small
green close, like the
(
SMH |
Quote |
Chart |
News |
PowerRating), BKX and XBD. The XAU was +1.8% and is +5.3%
since our focus. The metals have gotten more oversold than did the semis.
There
are some major players that like to attack some of the oversold groups
hoping to
squeeze some shorts and to replace some of the stock they sold higher,
consequently rolling down their cost of a larger position which they want to
keep.

 

  Thursday

5/13

 Friday

5/14
Monday 5/17		 Tuesday
5/18		 Wednesday
5/19

Index 

SPX  

High 		 1102.77 1102.37 1095.70 1094.14 1105.93

Low 		 1091.76 1088.24 1079.36 1084.10 1088.49

Close 		 1096.47 1095.66 1084.08 1091.67 1088.67

% 		 -.07 -.07 -1.1 +0.7 -0.3

Range 		 11.0 14.1 16.3 10.0 17.4

% Range 		 43 53 29 7.6 1

INDU 		 10012 10013 9907 9969 9938

% 		 -0.3 +.02 -1.1 +0.6 -0.3

Nasdaq  		 1926 1904 1877 1898 1898

% 		 0 -1.3 -1.5 +1.1 +.02

QQQ 		 35.01 34.75 34.42 34.73 34.69

% 		 -0.7 -0.8 -1.0 +0.9 -0.1

NYSE 

T. VOL 		 1.41 1.34 1.43 1.35 1.54

U. VOL 		 658 624 205 1.02 793

D. VOL 		 739 695 1.20 317 729

VR 		 47 47 15 76 52

4 MA 		 48 56 40 46 47

5 RSI 		 35 34 22 39 36

ADV 		 1559 1874 1042 2406 1791

DEC 		 1761 1440 2285 923 1524

A-D 		 -202 +434 -1243 +1483 +267

4 MA 		 -196 +599 -217 +118 +235

SECTORS 

SMH 		 -1.1 -1.3 -1.1 +1.8 +0.4

BKX 		 +0.1 +.09 -1.1 +1.0 +.03

XBD 		 -0.3 +0.9 -2.1 +1.4 +0.7

RTH 		 -0.5 -.07 -1.2 +2.0 -0.5

CYC 		 +0.6 -0.2 -1.8 +1.4 +.09

PPH 		 -0.6 +0.5 -0.2 +.08 -0.8

OIH 		 +0.9 +0.2 +0.2 -1.7 -0.2

BBH 		 +0.2 -0.5 -0.9 +0.6 -1.3

TLT 		 -0.4 +0.8 +0.9 -0.2 -0.3

XAU 		 -0.8 +1.4 +0.3 +1.8 +1.8

^next^

For Active
Traders

The SPX intraday high of 1105.93 on the 10:35
a.m. bar was right to the 1.5 volatility band of 1106.10, range narrowed,
and
there was a negative indicator divergence. There was a three-bar reversal
with
the stop above 1105.93 which held up, but the index went sideways, holding
above
1100 until the knife down after 2:00 p.m. If you held your position, or
whether
you got timed out and then re-entered short below 1100, the knife down was
the
lucky Moonshot you get every now and then, but you have to take the initial
trade, and there was nothing subjective about that decision yesterday.

In yesterday’s commentary, we said that if
the
SPY came out of the 109.80 – 109.60 closing range, it could run to the .786
zone
around 110.25. Well, it did that on the gap opening to 110.50, taking away
our
trade-through entry, but gave us a better one at an extended zone. I also
said
that above that level, intraday short setups could be taken into the
declining
20- and 50-day EMAs at 111.11 and 112.09. The SPY hit a 111.18 high and
finally
closed at 109.27. You got lucky with the extent of the move, but not the
trade
logic to take it. You had the SPX at the 1.5 volatility band zone in just
the
first hour of trading and the SPY 111.18 high was also at the five-day,
five-minute 2.0 standard deviation band to the penny.

Today’s
Action

After yesterday’s climb and fall from the
mountain, the SPX closed at 1088.67, and the closing range for the past nine
days has been a 1.0% range between 1098.69 – 1087.12 with some intraday
emotion
above it to 1106 yesterday and below at 1076 on 05/12/04. This was in
conjunction with three bounces off the 200-day EMA. All of this has been
excellent for sequence traders. We expected some tradable volatility into
this
expiration Friday and possibly next week into the long holiday weekend, so
yesterday was a good start. The major indices are now back to the low end of
the
range, and the pre-market futures are almost flat as I do this at 7:00 a.m.
ET,
but that can obviously change. After yesterday’s whipsaw, “The
Players” are
probably saying, “Let’s watch them open first.”

The SPX 200-day EMA is 1080.76, and you
should
know the confluence below that from previous commentary that I hope you
saved.
The SPY, which closed at 109.27, it’s the 200-day EMA at 108.48, with the
233
EMA at 107.62. The QQQ closed at 34.69, with the 200-day EMA at 34.73 and 233
EMA
at 34.40 with that 34 low yet to get taken out, and I think it soon will,
which
will set up an RST.

Have a good trading day,

Kevin Haggerty

P.S. I’m pleased to announce my
new workshop, Trading with the Generals 2004, will be held at New
York’s Waldolf-Astoria on June 25 – 27. To ensure everyone gets personal
attention, I’m limiting participation to 50 live and 40 live via Internet.  If
you want to attend, make sure you reserve your space early. 

Click here.