Top Of The Range Challenge

On Monday we said Expiration + Greenspan = Volatility and the Generals and program agendas have given us just that. Total volume jumped to 1.3 billion, a volume ratio of 86 with 1.2 billion up and just 193 million down. Advancers led decliners by +1042. The Nasdaq 100 (NDX | Quote | Chart | News | PowerRating) advanced + 5.7%, led by the Semis and SOX + 6.5%. The S&P 500 (SPX | Quote | Chart | News | PowerRating) ran +2.9% and the Dow +3.2%, as it closed above its down trendline from the 11,750 all-time high. It is just 4.7% from that high.

The Cyclicals powered ahead as the XLB (which are the Basic industry SPDRs) closed at 24.25, up 43% from its RST bottom last October which, by the way, was at the same time that 95% of the Semis gave us RST bottoms as the Generals started to discount a recovery. The Cyclicals have had big moves off their bottoms, e.g., (AL | Quote | Chart | News | PowerRating) +60%, (BNI | Quote | Chart | News | PowerRating) +70%, (NSC | Quote | Chart | News | PowerRating) +86% and in the trucking sector (ROAD | Quote | Chart | News | PowerRating) +77%, (CAT | Quote | Chart | News | PowerRating) is +93% and (DOW | Quote | Chart | News | PowerRating) +72%.

The first discounting in new bull markets starts with Cyclicals and Value stocks. Defensive stocks hit the wall and Growth stocks hit the skids and their bottoms. The Semis are commodity stocks and they hit their bottoms in the fourth quarter of 2000. During the first recovery stage, Value stocks, Cyclicals and sometimes Small Caps become the new market leaders and can outperform Growth stocks for a significant period of time, but the rising tide will lift all stocks. Interest rates start to inch up but not enough to cut off the rallies in Housing and Construction stocks which have rocketed, e.g., (PHM | Quote | Chart | News | PowerRating) has run 220% and is still above all of its EMAs.

The Generals have been consistent with their sector rotation and business cycles. Yes, that is correct. There still is a business cycle, New Era folks. I've only seen the sector rotations in bull and bear markets since 1969/70 and they are very similar except for minor subtleties. Markets discount future events and you can't participate unless you believe what you actually see, not what you read.

The S&P 500 (SPX | Quote | Chart | News | PowerRating) also closed just above its down trendline and is now challenging a 1305 200-day EMA and 1306.50 retracement to the 1530 9/1 high. The 200-day SMA is up at 1338. Yesterday, the Nasdaq 100 (NDX | Quote | Chart | News | PowerRating) went from almost the bottom of its trading range at 1769 to a 1904 high for a +7.7% low-to-high move. The top of its range is 1982.

I have included the NDX and SPX five-minute charts which show the simple clearly defined entry patterns. The NDX came out of a simple 1,2,3 higher bottom pattern -- which is the most common -- giving you entry at 1799 before running to a 1904 high. That was the trend entry but there was a previous 1,2,3 Close entry above 1787 which gave you the lowest-common-denominator entry pattern.

The rules for the 1,2,3 close are only taught at my seminar.

Chart 1. Five-minute chart of yesterday's NDX 100 (NDX | Quote | Chart | News | PowerRating)
with 8-period (high and low) SMAs and 5-period EMA.

The SPX gave you a 1,2,3 Close entry above 1245.25 and then the trend entry above 1247.95 which was the First Consolidation Breakout to New Intraday Highs and also an Opening Reversal. The only Grail I know is to keep it simple by identifying the buying and selling pressure and then the Change in Direction or continuation entry from a clearly defined pattern.

Chart 2. Five-minute chart of yesterday's S&P 500 (SPX | Quote | Chart | News | PowerRating)
with 8-period (high and low) SMAs and 5-period EMA.

Stocks Today

Yesterday was big red down early but we had done our daily chart homework from the SPX and NDX screens on the site and put those potential longs on our Trading Plans. Suffice it to say they were profitable, but more importantly, we were prepared and ready to act -- not just winging it. Many of these stocks that came out of the top yesterday on wide-range bars will probably be better intraday pullback trades or second entry longs above yesterday's high, but don't jump in on the first few bars.

The stocks are (BCC | Quote | Chart | News | PowerRating), (GP | Quote | Chart | News | PowerRating), (UTX | Quote | Chart | News | PowerRating), (DD | Quote | Chart | News | PowerRating), (BA | Quote | Chart | News | PowerRating), (TYC | Quote | Chart | News | PowerRating), (GE | Quote | Chart | News | PowerRating), (AL | Quote | Chart | News | PowerRating), (BAX | Quote | Chart | News | PowerRating), (AHP | Quote | Chart | News | PowerRating), (SGP | Quote | Chart | News | PowerRating), (TIF | Quote | Chart | News | PowerRating), (KLAC | Quote | Chart | News | PowerRating), (NVLS | Quote | Chart | News | PowerRating), (IRF | Quote | Chart | News | PowerRating), (BRCM | Quote | Chart | News | PowerRating), (NVDA | Quote | Chart | News | PowerRating), (IDTI | Quote | Chart | News | PowerRating), (LRCX | Quote | Chart | News | PowerRating) and (RIG | Quote | Chart | News | PowerRating).

In the Financials: (PVN | Quote | Chart | News | PowerRating), (COF | Quote | Chart | News | PowerRating), (C | Quote | Chart | News | PowerRating), (LEH | Quote | Chart | News | PowerRating), (BSC | Quote | Chart | News | PowerRating) and (GS | Quote | Chart | News | PowerRating).

Also (AMGN | Quote | Chart | News | PowerRating), (HGSI | Quote | Chart | News | PowerRating), (CSCO | Quote | Chart | News | PowerRating), (SUNW | Quote | Chart | News | PowerRating), (ADBE | Quote | Chart | News | PowerRating) and (IDPH | Quote | Chart | News | PowerRating).

I didn't mention the Travel Range stocks but you have that list -- it's almost the same every day with a few variations. Have a good trading day and don't get aggressive on your first entries at all. Obviously we moved quite a bit yesterday and we are going to get some selling into this.