Volatility Contracting, And You Know What That Means
What Tuesday’s Action Tells
You
The major indices gapped open and then
immediately declined, taking out the entire last-hour program-initiated up
move
from the previous day. The
(
SPY |
Quote |
Chart |
News |
PowerRating) hit a high of 107.93 and then declined
to
107.18 on the 11:15 a.m. ET bar, which was a retracement setup to take.
I
have included the SPY chart which shows the entry at 107.26 which had
confluence
with the 240 EMA and the .618 retracement to the previous day’s 106.72 low.
This
trade only went to 107.46, then went sideways between 107.46 – 107.20 until
the
typical Federal Reserve doublespeak and then the 2:15 p.m. breakout of the
range
up to 107.62. The SPY then said “whoops” and declined to a 106.54
intraday low,
closing at 106.75.
The other major indices made the same move as
the
SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating). It was a good entry, but when it goes sideways too
long,
you abort the trade based on time. NYSE volume expanded to 1.42 billion, the
volume ratio 29, while breadth was -709. The Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) ended
at -0.4%,
while the techs, led by the semiconductors, had a rough day. The Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating) was -2.1% and the
(
QQQ |
Quote |
Chart |
News |
PowerRating)s -2.3%.
The
(
SMH |
Quote |
Chart |
News |
PowerRating)s led the major sectors down at -4.2%,
the XBD -1.8% and the BKX -1.3%. The CYC managed to finish small green, while
the
(
TLT |
Quote |
Chart |
News |
PowerRating) — long bond proxy — ended at -0.7% after being up +0.3% prior
to the FOMC meeting. Why should interest rate hikes pending be such a surprise
after the economic news we have been getting? I don’t think there will be any
stopouts any time soon on the TLT short. The SMHs broke through the 41 lower
trading range boundary and hit a 39.28 intraday low, closing at 39.40. There
was a Slim Jim between 40.50 – 40.25, which was then taken out on the 2:20 p.m.
bar.
size=2> |
Wednesday
12/3 |
Thursday
12/4 |
Friday
12/5 |
Monday 12/8
|
Tuesday
12/9 |
color=#0000ff>Index | |||||
color=#0000ff>SPX | |||||
color=#0000ff>High |
1074.30
|
1070.37
|
1068.41
|
1069.59
|
1071.94
|
color=#0000ff>Low |
1064.63
|
1063.16
|
1060.21
|
1060.93
|
1059.16
|
color=#0000ff>Close |
1064.73
|
1069.72
|
1061.50
|
1069.20
|
1060.18
|
color=#0000ff>% |
-0.2
|
+0.5
|
-0.8
|
+0.7
|
-0.9
|
color=#0000ff>Range |
9.7
|
7.2
|
6.9
|
8.7
|
12.8
|
color=#0000ff>% Range |
0
|
91
|
19
|
95
|
8
|
color=#0000ff>INDU |
9873
|
9931
|
9863
|
9965
|
9923
|
color=#0000ff>% |
+0.2
|
+0.6
|
-0.7
|
+1.0
|
-0.4
|
color=#0000ff>Nasdaq |
1960
|
1969
|
1938
|
1949
|
1908
|
color=#0000ff>% |
-1.00
|
+0.4
|
-1.6
|
+0.6
|
-2.1
|
color=#0000ff>QQQ |
35.26
|
35.63
|
35.05
|
35.26
|
34.43
|
color=#0000ff>% |
-1.2
|
+1.1
|
-1.6
|
+0.6
|
-2.3
|
color=#0000ff>NYSE | |||||
color=#0000ff>T. VOL |
1.42
|
1.38
|
1.22
|
1.19
|
1.42
|
color=#0000ff>U. VOL |
609
|
688
|
370
|
738
|
410
|
color=#0000ff>D. VOL |
783
|
689
|
830
|
438
|
999
|
color=#0000ff>VR |
44
|
50
|
31
|
63
|
29
|
color=#0000ff>4 MA |
57
|
55
|
42
|
47
|
43
|
color=#0000ff>5 RSI |
65
|
72
|
53
|
64
|
47
|
color=#0000ff>ADV |
1518
|
1605
|
1437
|
2157
|
1285
|
color=#0000ff>DEC |
1749
|
1641
|
1787
|
1088
|
1994
|
color=#0000ff>A-D |
-231
|
-36
|
-350
|
+1069
|
-709
|
color=#0000ff>4 MA |
+481
|
+312
|
-159
|
+113
|
-7
|
color=#0000ff>SECTORS | |||||
color=#0000ff>SMH |
-1.8
|
-0.6
|
-3.6
|
-0.2
|
-4.2
|
color=#0000ff>BKX |
-0.4
|
-.03
|
-0.9
|
+1.3
|
-1.3
|
color=#0000ff>XBD |
+0.6
|
-0.9
|
-1.4
|
+1.1
|
-1.8
|
color=#0000ff>RTH |
-0.8
|
-0.4
|
-0.9
|
+0.1
|
-1.1
|
color=#0000ff>CYC |
+0.4
|
-.05
|
-1.0
|
+1.3
|
+0.2
|
color=#0000ff>PPH |
+0.5
|
+0.2
|
-0.5
|
+0.9
|
-0.5
|
color=#0000ff>OIH |
-1.3
|
+3.4
|
+2.3
|
+0.1
|
-0.3
|
color=#0000ff>BBH |
-0.4
|
-0.3
|
-0.8
|
-0.1
|
-0.7
|
color=#0000ff>TLT |
-0.4
|
+0.2
|
+1.6
|
-0.7
|
-0.7
|
color=#0000ff>XAU |
-.07
|
-2.6
|
+1.8
|
-0.3
|
-2.9
|
For Active Traders
I have also included the
(
INTC |
Quote |
Chart |
News |
PowerRating) chart
which
shows INTC, -4.4% on the day, breaking below its daily chart trading range
low
of 31.72 and then the Slim Jim between 31 – 30.78 and break out down to a
30.11
low, closing at 30.24 on +226% more than its average volume. You were ready
for
any semiconductor air pockets led by a break in the SMH trading range.
Contracting volatility often precedes explosive moves, and many of the semis
were set up in 1,2,3 double and lower top patterns during the five-week SMH
trading range after hitting the confluence between 45 – 44. (See the Dec. 8
commentary.)
I have also included Monday’s charts of
(
MSFT |
Quote |
Chart |
News |
PowerRating)
and the Nasdaq Composite. All of the strategy
modules came into play for MSFT. First, there was an Opening Reversal which
was also a Flip Top pattern with entry below 26.08. This only traded down to
25.81, with the 1.272 Fib extension of the previous leg up at 25.84. This set
up an RST entry above 25.89. The other four swing points are labeled to the
left of the 25.81 low. This proved to be the intraday low of the day. If you
missed the RST, there was a 1,2,3 higher bottom with entry above 25.94 followed
by the Slim Jim with entry above 26.04 which ran to a 26.34 high, closing at
26.24. The Opening Reversal and Flip Top strategies are in the First-Hour
module, while the 1,2,3s
and the Slim
Jim are individual modules. The RST is taught in the seminar material and
manual, as of course, are all the strategies. The Nasdaq chart shows you the
RST pattern that triggered above 1929.30, preceding the SPX move. There was
a positive divergence in the MACD (8,17,9), while the 8,3,3 stochastic turned
up from below 20.
With the SMHs at new levels and a 39.40 close,
I look to the 39.10 – 38.50 zone for any setup if price action dictates and
maybe before if the early game goes green. The 50-day EMA is up at 40.75 and
the 89-day EMA 38.61 with a 38.85 support level and a 39.07 1.618 Fib extension,
so there’s a lot going on down there. The trading range lower boundary is up
at 41, so traders have some flexibility both long and short depending on how
price reacts at the different levels. The QQQ closed at 34.42 with the 50-day
EMA at 35.10 and the 89-day EMA below at 33.88. New swing point lows are below
33.73.
(
GE |
Quote |
Chart |
News |
PowerRating) and MSFT both bucked the trend
yesterday,
up about +0.5%. MSFT has now retraced up to the 50-day EMA which is 26.52
and
had a 26.61 intraday high yesterday, closing at 26.39, so stops have been
moved
up. The SPY closed at 106.74 with the 20-day EMA at 106.26 and there was
also a
last-hour RST long setup above 106.62 on the five-minute chart, but time ran
out.
Today’s
Action
The early futures are a non-event at 8:10 a.m.
ET, with the Nasdaq +1, S&Ps -1.20 and Dow -19. Any early down move in the
major indices taking out yesterday’s lows would provide the better long setups
for daytraders as price gets extended.
Have a good trading day,
Kevin Haggerty
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