We Thank You

This
will be brief
this morning as
Covad has once again taken the East Coast and Dallas down on the DSL, so I am
unable to access the screens and proprietary market data. I am in the process of
trying to switch but finding out it is another game that makes it difficult
without downtime in between carriers.

Everybody has their own
game but none as profitable as the program traders. Daytraders thanked the
program traders for yesterday’s afternoon rally, and we also thanked the market
makers and specialists for the steep discounts that the retail sellers got on
the opening. This early retail selling gave us some Trap Doors such as
(
TXN |
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PowerRating)

(see your five-minute chart).

The indexes then sold down
until about the 1:15 p.m. period and that’s when the program gang showed up.
After edging up, the real pop came around 2:00 p.m. and you had another payday.
The OEX (after earlier breaking the 600 Triple Bottom, trading down
to 596) reversed 600 to the upside and rallied into the close to 605.03. There
were some good setups at that time frame such as the Slim Jim in
(
NVDA |
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News |
PowerRating)

which broke out of the Slim Jim on the 2:05 p.m. bar above 86.59 and rallied to
close at 89.55. See your five-minute chart.

The Nasdaq 100
(
NDX |
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had already made a continuation intraday
breakout on the 1:55 p.m. bar, along with the SOX, so you had confirmation to
take the NVDA Slim Jim. Knowing how the program game is played, I said in
yesterday’s text that you should expect some playable long reflex moves,
especially if there was an early down. That’s what we got.
NYSE
volume was about average at 1.1 billion, the volume ratio a neutral 51 and
breadth slightly positive at +282. The positives on the day were that the Semis
turned green early and the Basics again showed resilience. 

The good news is if the
market sells off some more into the August 22-24 cycle (setting it up for a more
significant rally through the end of the month and Labor Day). The stronger
period of converging cycles is the late-September/early October period which
would line up as a low, setting up a good run into year end. 

The bad news is if there is
an inversion and the markets rally into the August 22-24 cycle period. This sets
up, in my opinion, a severe decline into the late-September cycle. It doesn’t
look like there will be an inversion.

(September
Futures)

Fair Value

Buy

Sell

2.90

 
4.00  


  1.95  

Stocks
Today

There is early red as the
S&Ps are -7 and the NDX futures are -29. Hopefully, this begets some more
retail selling this morning and daytraders’ early shorting because it will set
up another contra rally trade this morning. If the program traders have any
excess stock from the markup yesterday, they will unwind it early on. Why not?
They made their chop yesterday.

The odds favor flat to down
today as about 85% of the Option Fridays for the past one and a half years
played out that way. Nothing is absolute in dynamic markets but you must always
be aware of the highest probability. With the early red, Trap Doors and
Volatility Bands will be in play for long side intraday trades, not continuation
long entries above the previous day’s high. 

Favor the following Semis:
(
TXN |
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,
(
KLAC |
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,
(
NVLS |
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,
(
GNSS |
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,
(
IDTI |
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,
(
ADI |
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and
(
BRCM |
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.
Also NVDA which is back to the 88-93 retracement zone, so be alert for any short
opportunity into a rally. 

On the Basic side, stick
with the institutional favorites like
(
CAT |
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,
(
AA |
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or
(
AL |
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,
(
DOW |
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,
(
WY |
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,
(
GP |
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, and
(
IP |
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.

Other stocks that do set up
on the daily charts — probably won’t happen, but just in case —
(
MYL |
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,
(
ABT |
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,
(
BAX |
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,
(
WM |
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,
(
STI |
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and
(
NEM |
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above Wednesday’s high. 

On the shorts, because it’s
Option Expiration Friday, I would focus on the QQQs and SPYs. They will be an
easier read and there will be a lot of activity.

Have a good trading day.

Five-minute chart of
Thursday’s S&P 500 with 8-, 20-,
60- and 260-period
EMAs

Five-minute chart of
Thursday’s NYSE TICKS

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