Work In Progress
On
Friday we said volatile things could happen from
a congestion pattern that was in convergence with its key moving averages,
especially after advancing 33% in just 15 days. The Nasdaq 100
(
NDX |
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PowerRating) broke
below the 50-day EMA to the downside and below the congestion for a 5.1% decline
on the day. The high for this rally was 2772, which was right at the .786 RT
zone of 2797, framed from 2087 to 2991.Â
There was an entry pattern
at the 1.28 volatility band of 2519, for entry at 2525. It looked like the
beginning of a contra move, but after crossing the 8-period moving average of
the high, it failed at 2735 and made new lows, trading down to the 2.0
volatility band of 2470, where it closed at 2472. As sometimes happens, the
pattern failure led to an aggressive move.
The S&P 500
(
SPX |
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PowerRating),
which had rallied 10.3% in 27 days from the 1254 low to the 1383 high, declined
1.8%. The resistance you were well aware of in advance — the .618 RT zone and
the 200-day EMA of 1390 — put the cap on the rally. The SPX closed at 1349.47,
right on its 20-day EMA, while still above its 50-day EMA of 1335. For your
downside alert zones, frame it between 1254 and 1383. For the NDX, it is 2087 to
2772.Â
Right now, look at the
strongest major sectors during the rally — like the Semis — and look for
setups at inflection points such as the 20-, 50- and 200-day EMAs, and also the
top of base support that they broke out from. As daytraders, you only have to
watch for change of direction patterns at the various inflection points and
alert zones. Price is king when you are limited by the time and range of just
one day. All the rest is just rhetoric in a daytrader’s eyes.
The QQQs gave us that good
short-side run on Friday in the downdraft, as did our recent shorts like
(
AMCC |
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and
(
BRCM |
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PowerRating). When stocks close in the bottom of the range on volume and range
expansion, you are always looking for the continuation short, but usually after
a small up move and then you get the second entry. The
first entry, especially in the OTC stocks, is very often the head fake because
of the early noise with the futures, market makers, etc.
With the NDX correcting,
and so many bottom-of-the-range closes, your first look is at the closing ranges
from Friday for early entry, short or long. You should also focus on stocks at
or near inflection points such as their moving averages and Fib retracement
levels.Â
For example, NVLS gained
98.5% over the past eight weeks, from 24 15/16 to 49.5. It broke out of a basing
pattern at 36, then ran to 49.5 last Wednesday and closed at 43 3/16 on Friday.
Imagine that! The nerve of that stock gaining so much while so many told you the
perils of tech stocks and the Nasdaq crash and picking bottoms!
The 200-day EMA for
(
NVLS |
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42.89 and the 20-day is 43.32. Can you get a brief bounce off of these
inflection points? Of course you can — but after the 98.5% run, don’t you think
the higher probability is more correction? I do, because only a raging bull
would bode otherwise and we’re not quite at that point yet.
(March
|
||
Fair Value
|
Buy
|
Sell
|
7.10
|
8.40Â |
 5.80Â
|
The 49.5 high on Wednesday
was right at the .618 RT level from the last significant high of 62 1/8 on
9/20/00. Once it trades below the 200-day EMA, you have the top-of-the-base
support at 36 and the 50-day EMA at 36 5/8. The .38 RT level is 40.16, the .50
is 37.22 and the .618 is 34.32. There are many other Semis and techs in the same
position, but you must do the work on the daily charts to be prepared for
intraday trades. When they get to your levels, you’ll be alert for the
possibility of an entry.
Some other Semis around
inflection points that you can focus on short or long over the next few days
are:
(
AMCC |
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PowerRating),
(
CIEN |
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PowerRating),
(
MU |
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PowerRating),
(
AMD |
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PowerRating),
(
VTSS |
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(
ADI |
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PowerRating),
(
KLAC |
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PowerRating),
(
INTC |
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PowerRating) (which is pulling back to its
50-day EMA of 34.90),
(
AMAT |
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PowerRating) and
(
ALTR |
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PowerRating). Doing the homework, you will find many
other stocks pulling back to inflection points, so do your work, because that’s
where the volatility is.Â
Have a good trading day.