Look For Major Relative Strength Or Weakness
Friday November 14, 12:01 pm ET
By Kevin Haggerty
What Thursday's Action Tells You
The SPX (CBOE:^SPX - News) 12.5 point wide-range-bar up day was followed by a pause day yesterday with a range of just 6.7 points, as the SPX closed at 1058.41, virtually unchanged from the previous 1058.53 close. NYSE volume was also about the same at 1.36 billion, with the volume ratio neutral at 51, as is the four-day MA at 50. Breadth was on the plus side at +467. The other major indices also finished pretty flat, but in the top 20% of their ranges, which sets up inside-bar patterns for the DIAs and QQQs with entry above Wednesday's highs. For the SPY, it is above yesterday's high because of the marginal high yesterday above Wednesday's 106.47 high.
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In the sectors, the leaders were the PPH, +2.9%, OIH, +2.0%, and BBH, +1.4%, all of which had sold off while technology and the major indices have worked higher, but with narrowing range, rising price and a negative divergence in momentum. If you look at your SPX daily chart, you will see what I mean. After the SPX 1040.29 high on 9/19 and then a retracement to the 990.36 low on 9/30, it has been a rising price and narrowing wedge up to this 1060 zone that the SPX has been churning in for the past nine days, with the high close at 1059.02 and low close 1046.57. This range will be resolved quickly, if not today. The banks and brokers were flat yesterday, while the RTH was -1.6% and retail has not acted well relative to the market over the past week. The SMHs, which are a thrill a minute, gave back a little over 50% of the previous day's +3.6% gain, closing at 43.79, -2.0% on the day.
For Active Traders
Narrow-range days for major indices and that are also small on intraday travel range take away most of the ammo for daytraders, which was the case yesterday. There was only a 5.5 point early SPX decline into the 10:45 a.m. ET bar, then it was choppy until a 4.5 point up move into the close starting around 2:45 p.m. There were, however, things to do in individual stocks in the biotech, oil service and drug groups, which were up +1.0%, +1.5% and +1.3% at 9:45 a.m., while the major indices were all red, with the SPX -3, Dow -46, in addition to the QQQs and Nasdaq, which were also on the red side. When you see this kind of divergence and relative strength, you certainly start scrolling stocks in those sectors for setups. Early up in the first 30 minutes usually means there will be at least one consolidation or retracement, and that is what you are scrolling for.
For example, see the 25-bar Slim Jim on the five-minute chart for (NasdaqNM:GENZ - News) between 45 and 44.75 that broke out on the 12:30 p.m. bar, running to a 46.11 high. If you were scrolling oil service stocks, you saw early up openings, then Gap Pullback setups, which are in the First-Hour Strategy module. If you checked the drugs, you found good retracement setups, like (NYSE:MRK - News)'s retracement to the 20-period EMA on the five-minute chart that then took off and ran 1.5 points on the continuation move.
I am not trying to recap just a good trade for you, but I am making a key point. This point is that you should always be looking for any major relative strength or weakness after the 9:30 opening and then scroll those stocks for trade setups. If you just trade the E-minis, in narrow-range days like yesterday, it sharply curtails your playing field.
For Today
For today, the initial breakout levels are 98.95 on the DIAs, 35.96 on the QQQ and 106.54 on the SPY. When you get a pause day, which is also an inside-bar day that follows a wide-range-bar up day which closed in the top of the range, then if you get a trade-through entry today, you have to take some position on the first entry, especially if the early tone is good, and also because any breakout of this range can run quickly to 1068, which is the .382 retracement to 1553 from 769, and 107.10 is the SPY equivalent. I am talking daytrade here, NOT position trade, which shows me no edge unless the negative momentum were to change.
Have a good trading day,
Kevin Haggerty
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Kevin Haggerty was the head of Equity Trading at Fidelity Capital Markets for seven years. In his position, Mr. Haggerty had complete responsibility for all U.S. institutional and broker/dealer equity trading. He is the creator of a series of training modules geared for professional traders, including "How I Trade Major First Hour Reversals For Rapid Gains," "How To Successfully Trade The Haggerty 1,2,3 Strategy," and "How To Successfully Trade The Haggerty Slim Jim Strategy For Explosive Gains." Mr. Haggerty is a co-founder of Tradingmarkets.com and is the founder of KevinHaggerty.com. |
