You Should Have These Names On Your List

September 17, 2003
Kevin Haggerty

What Tuesday’s Action Tells You

The past four days’ range was resolved yesterday,
as the SPX
(
$SPX.X |
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PowerRating) closed at 1029.32, +1.4%, the Dow
(
$INDU |
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+1.3%. The Nasdaq
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$COMPQ |
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PowerRating) was +2.2%, closing at 1887, and the
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at 34.40 was +2.7%. NYSE volume expanded to 1.35 billion shares, volume ratio
all one-sided at 85, and breadth +1331. The market action for the major indices
was up — sideways — and then a 2:35 p.m. ET spike up for the SPX into a
1029.32 close. The SPX traded through the 1015 upper boundary on the first bar
right to 1022 by 10:25 a.m., then went sideways until the “game” started on the
2:35 p.m. bar, as the SPX gained another 9 points.

For Active Traders

Yesterday’s action was very positive in that it
comes after the five-day retracement to the 20-day EMA for the major indices and
was resolved, at least initially, to the upside, keeping this fifth leg up from
the March lows intact and giving the SPX a shot at that 1050 – 1100 zone of
confluence. I have included two charts of the SPX today which keeps the rally
from the March 789 low in perspective. The daily chart outlines the previous
legs of the rally, with Leg 4 (W4) being sideways and down, and now the SPX has
entered the fifth leg, after which there will be more than a 5.0% or 6.0% move
down because it will correspond with the end of the longer-term Leg 3 from the
October 769 low.

The weekly SPX chart outlines the obvious third
leg (W3) of this bull move off the 769 low. The first leg gained 24% to 954,
which was the .236 retracement to the all-time 1553 high and also to a declining
40-week EMA. Leg 2 followed with a -17% move down, which set up the 1,2,3 higher
bottom which started the third leg which was confirmed by trading above 954. The
third leg is the strongest move of the sequence, and the highest probability is
that there will be a fourth leg down and then a fifth leg up to some degree
completing this cycle. The third leg is +31% so far from 789.

The next magnet on the upside is the .382
retracement to 1553 of 1068, which is also the same zone as the price objective
on the breakout of the 1015 – 960 box. The third leg has been strong, as
evidenced by the 39,1 slow stochastic at the same levels as the 1553 all-time
high. The fourth leg down will alleviate that overbought condition.

The inside bar setup for the SPX on the daily
chart yesterday required you to enter long above Friday’s 1019.75 high,
confirming the trade through yesterday of the 1015.41 top-of-the-range boundary.
For the
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SPY |
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PowerRating), it was above Friday’s 102.64 high. The first entry carried to
102.85, went sideways, then went up to 102.96 before trading down to 102.56 on
the 2:30 p.m. bar, which set up a great second-entry trade above 102.64 which
carried to 103.64 and closing at 103.58. Daytraders, just say thank you to the
“game,” and we start today ready to catch a ride if there is any follow through.

Today’s Action

No mystery as to where the highs are, and if they
push the indices through today, keep to your discipline, and don’t buy any more
than 1/2 a daytrade position. Keep your powder dry for a second-entry trade if
the “game” is up again today.

The same entry disciplines apply to the
individual stocks, and even more so if they break out of their high end ranges.
If you miss the second entry and/or a pullback, just move on to the next stock,
especially if the breakouts come on or soon after the open.

Have a good trading day,

Kevin Haggerty

You Should Have These Names On Your List

BUY THE FEAR, SELL THE GREED

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