Traders Capitalize On First-Hour Over-Reaction
What Friday’s Action Tells
You
It was a trader’s first hour as the SPX
(
$SPX.X |
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PowerRating) made its intraday high on the 10:05 a.m. ET bar at 1197.46,
then
immediately reversed down to 1189.30 by the 10:40 a.m. bar. It was an
excellent
Trap Door play for daytraders with entry below 1196.39. The
(
SPY |
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PowerRating) hit a
120.14 high with the doji bar short entry below 120 which quickly traded
down to
119.25 on that same 10:40 a.m. bar. 120 was the Fib extension of the last
SPY
daily chart leg down from the 114.68 10/06 high to the 10/25 low. The SPX
minor
resistance is that 1190 – 1195 zone, and you see that the SPX has closed the
last three days at 1191.37, 1190.33 and 1191.17 on Friday, up just .84. The
Dow
(
$INDU |
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PowerRating), 10,592, was +7 points, Nasdaq
(
$COMPQ |
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PowerRating), 2148, +0.2%,
and
the
(
QQQQ |
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News |
PowerRating) +0.1% to 40.13.
NYSE volume was 1.56 billion shares, volume
ratio
neutral at 55, as is the 4 MA of 54 working off the short-term overbought
condition in a trading range pattern. Breadth was +859.
In the sectors, the semis led, powered by
(
INTC |
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PowerRating) as the
(
SMH |
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PowerRating) finished +2.3%, but had been up more than 4.0%
during the morning. In fact, the SMH opened at 34.63, +3.3% from the
previous
close. The 2.0 volatility band was 34.59 and the 3.0 volatility band 35.14.
The
SMH hit 34.95 on the 9:40 a.m. bar and never saw that price again, trading
down
to 34.27. So, I ask you, who made the money once again on these
overreactions?
Correct, the Specialists, Market Makers and those traders that understand
the
probability of volatility reverting to the mean after an extended general
market
reaction in the opening time period.
The
(
OIH |
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News |
PowerRating) went green at +1.7% after four
days
down and the sudden drop in oil prices. The intraday low of 80.16 was made
on
the second five-minute bar, then traded up to 82.25 by 10:50 a.m., once
again
re-crossing that 81.10 89-day EMA. It went sideways, then traded up to 82.59
before closing at 82.05.
With the hyped jobs report fixation, mostly
by
the media and Democratic strategists, the
(
TLT |
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Chart |
News |
PowerRating)s gapped +1.6% on the day
to
87.44 as the “number” came in light. Isn’t it funny how the
constant revisions
never get traded, just the initial number hype. There are now more people to
work than ever, and the non-payroll jobs because of so many people doing
their
own Sub-Chapter S and LLC business has significantly increased since the
tech
bubble and the tax reductions, but they are not calculated in the reported
jobs
number. They should obviously be combined to fit the current economy, which
is
reality. Net net, the major indices and TLT price will not continue in the
same
direction. If the TLTs get back above 88.50, they will be met by some
sellers.
Today’s
Action
The holiday bias was up, as is the December
new
money put to work by the
Generals. It is now countdown to year-end, with the
SPX
+7.0% year-to-date, and the Generals, I am sure, would like a
double-digit-plus
year. From here, that will take the SPX to that 1220 – 1254 resistance zone,
which is the next primary zone after the 1161 level was taken out.
Since the August lows, it has been technology
and
small-cap, with both the
(
IWM |
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PowerRating) and QQQQ both +24% low-to-Friday’s-close,
while the SPY is +13%.
In fact, the QQQQs have advanced seven weeks
with
higher weekly highs and lows, which is an excellent run. They closed at
40.13
with the five-week EMA at 38.88. The RSI is 65 and has started to diverge,
but
you would think there is some more year-end upside room. However, I don’t
think
a final push into year-end can be sustained without some short-term downside
to
relieve some of the current upside pressure. That will happen no later than
mid-December.
The bull cycle is in leg five off the October
2002 769 low, and there are some ominous signs that the game will be in
trouble
in the first quarter of 2005.
Have a good trading day,
Kevin Haggerty