Upper Level SPX

December 7, 2001
Kevin Haggerty

The
binge that started at 2:00 p.m. Tuesday afternoon with
the “I don’t want to own them at 10 but would rather own them at 30”
crowd took a rest. NYSE volume was 20% above average at 1.463 billion, but the
volume ratio was just 49, with 699 million up and 733 million down, while
breadth was a push at 49.

After gains of 20%-30% in
many stocks, especially those that are proposed to enter the NDX 100
(
$NDX.X |
Quote |
Chart |
News |
PowerRating) and where the shorts got squeezed, it shouldn’t surprise that
the register got rung, especially by those running ahead of the Generals. There
are also many decimated tech stocks that many held onto all the way down that
have rallied enough for many to recoup a percentage of their losses. There are
many Generals still lugging too many shares of these dogs, so they will meet
more resistance on any further rise into year-end as losses are taken.

The best trade in the
S&P futures yesterday was a lay-up for all of you sequence traders, as
evidenced by all of the e-mails I received. The SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) hit the .618
RT zone to the May high at 1174 with an exact intraday high of 1173.35, which
was right on a geometric extension of the first leg down. We saw the same thing
about six times, as the SPX struggled at the 1150-1160 zone of resistance,
providing daytraders with some excellent intraday trades. Until proven
otherwise, I expect the same opportunities at the upper end of resistance from
1174-1210. The .618 retracement is 1174; the 200-day simple moving average is
also 1174; the 200-day EMA is 1180; the 233 Fib EMA is 1193; the .707 retracement
to the May high is at 1207; and a square of 9 number is at 1208. The
year-to-date down trendline is running at about the 1195 level.

People ask me about which
moving average is best to follow, and my answer is look at ALL the SMAs, EMAs
and Fib moving averages to see which ones the stocks or indices are cycling to
because it varies over different market cycles. Moving average numbers are not
magic. They are just alert zones to see how a stock or index trades approaching
these levels. It’s the price action, volume and reversal patterns that may
develop at the various alert zones that you key on.

Take for example the
Nasdaq Composite, which closed at 2054. The initial resistance was 1935-1950,
with the 200-day SMA at 1942. It broke out of the narrow-range pattern and
through the 200-day SMA. That certainly brought in continuation buyers. Is it
now clear sailing? Don’t know, but I am aware of the 200-day EMA right here at
2056 and the Fib 233-day EMA at 2127, which is also the .50 retracement zone to
this year’s high of 2892. The Composite has gained 49% low-to-high during the
rally, and a .38 retracement is down at the 1820-1830 level. Again, be aware of
all levels and look for reversal patterns.

Stocks
Today

I’m not crazy about any
of the daily charts. I’m more interested in selling the index proxies into this
resistance at any kind of intraday reversal.

Also, many of the stocks
that have big gains, like most of the techs and some of the biotechs, those
become all intraday candidates in any kind of a pull back and go.

Have a good trading day.

Five-minute chart of
Thursday’s SPX with 8-, 20-,
60- and 260-period
EMAs

Five-minute chart of
Thursday’s NYSE TICKS

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