Zone

May 30, 2002
Kevin Haggerty

The
previous day’s Nasdaq divergence did
nothing for us yesterday, as the
(
$SOX.X |
Quote |
Chart |
News |
PowerRating) downside follow-through day was
a day late. The SOX, led by the semi equipment stocks, declined -3.3%. Volume
was again light, leaving the market to the accelerators and program gang. NYSE
volume was 1.07 billion shares, a volume ratio of 33, and breadth -384, so
yesterday was just a carbon copy of Tuesday.

The
(
$XAU.X |
Quote |
Chart |
News |
PowerRating), which
is the gold index, declined -3.2%, giving back its entire gain from the previous
day, but the second part of the equation, the US dollar, declined again and is
just above the September lows, and of course, the most oversold since September.
You want to see this turn north.

The early morning
weakness in the first hour gave us some volatility band setups, but they all
failed after small advances, as the major indices drifted sideways and lower
after the 10:30 a.m. contra-rally attempt. For example, the
(
SMH |
Quote |
Chart |
News |
PowerRating) 2.0
volatility band was 38.25, the 1.5 band was 38.73. The first decline was to a
38.81 low, which was a hammer reversal bar with entry above 38.97. The rally was
over at 39.27. That was the extent of the advance from the 10:45 entry bar to
the 39.27 high at 12:20. From there, it sold back down to a 38.75 low, and this
setup only carried to 39.25, then closed at 38.85. Net net, we got entry, no
real follow through, but also no pain.

The SPX and NDX did the
same, but entries were only at the 1.0 volatility band zone, but they also
failed after small ups.

The table is set for the
program gang to attack and leg into their self-front-running program from the
longside. The only deterrent will be if the Generals show up today with real
sell orders and strong downside intent. There’s plenty of cash on the sidelines,
especially in the hedge fund arena, and they’re down to just seven months to
make something happen. I don’t think the shorts are nearly as big as they were.
The program gang could attack on any rally in the dollar, and the fact that the
bias is to buy stocks the last two days of the month and sell on the fifth day
of the new month.

The pre-market futures
show red, with the S&Ps -5, Nasdaq -8, and Dow -37. This is positive in my
mind because the setup from an early down would be a better one for the program
attack. With what’s going on with the terror alerts, etc., stay with the
daytrade unless you are using an option strategy with a defined downside risk.

Stocks
Today

There’s certainly not
much that sets up on the daily charts, and also, at these levels, based on where
we are, it’s very, very good to stay with the index proxies and sector proxies
on both the long and the short side.

Have a good trading day.

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

Five-minute chart of
Wednesday’s NYSE TICKS

Zone

BUY THE FEAR, SELL THE GREED

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