These Two Things Are Not A Good Mix...Here's What You Do

There was a surge in option expiration activity late in the day yesterday, as total NYSE volume was 1.4 billion, and at 2:00 p.m. ET, the volume was about 947 million. Both the SPX ($SPX.X | Quote | Chart | News | PowerRating) and Dow ($INDU | Quote | Chart | News | PowerRating) had +0.8% days, while the Nasdaq ($COMPQ | Quote | Chart | News | PowerRating) was +1.1% and the NDX 100 ($NDX.X | Quote | Chart | News | PowerRating) +1.3%. All of the major sector SPDRs were green, and there are nine of them, such as the XLK, XLB, etc. The NYSE volume ratio was positive at 69, as was breadth at +778.

In the specific sectors, the brokers, which is the XBD, led at +3.6%, the biotechs +2.1%, and the SOX +1.9%. Semis and brokers advancing in tandem for any period of time is positive and a good gauge of institutional perception of where the economy is heading. They are both at extended level zones now, same as the major indices.

The rising prices for major index proxies, such as the (SPY | Quote | Chart | News | PowerRating) and (QQQ | Quote | Chart | News | PowerRating), has been accompanied by obvious declining volume for the month of May so far. Since the March 31 retracement low, all of the major indices are in rising wedges, with a significant decrease in daily range, as volatility has narrowed. Rising price, declining volume and narrowing range is not a good mix for naked longer-term positions, so be alert and adhere to your trailing stops if you are in a profitable position that you are keeping on until the market proves you wrong, which is as it should be.

The Generals are capable of making another push up to the 3.0 band before a retracement, but there is no edge on making that bet with new entries right here. Just protect what you have and stay the ride until price throws you off.

After the two price thrust days last Friday and this Monday, the indices have consolidated for three days, as evidenced by the dynamite triangle formed by the Dow, with the last three days within Monday's daily range, which was between 8743 and 8569. After two days of wide-range bars bouncing off the 200-day EMA and now this positive continuation pattern, you can see how it can easily be resolved by another push up to the higher levels of previous resistance. The rising wedge Fib extensions from the retracement leg ending March 31 for the Dow are 8680, 8764, and the 1.618 at 8885. For the SPX, it's 948, 960 and the 2.618 at 980. The SPX is obviously ahead of the Dow and why the current Dow consolidation is interesting.

The (BBH | Quote | Chart | News | PowerRating)s made a new closing high for this rally at 106.22 and is now looking at our other price objective, which was 112. Our biotech stocks like (GILD | Quote | Chart | News | PowerRating), (GENZ | Quote | Chart | News | PowerRating) and (AMGN | Quote | Chart | News | PowerRating) have been good to us, as have (USAI | Quote | Chart | News | PowerRating), (EXPE | Quote | Chart | News | PowerRating) and (PCAR | Quote | Chart | News | PowerRating), all of them coming out the top again and continue to provide the good daytrading setups that above-the-line stocks normally do.

Have a good trading day and have a wonderful weekend.

Kevin Haggerty

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

Five-minute chart of Thursday's NYSE TICKS