Slim Jim Breakouts Galore -- Did You Participate?

Another brokerage firm semiconductor downgrade yesterday provided some early opportunity for traders, but it was slow going as price rebounded some, then went sideways until the program lights lit up the board at 2:00 p.m. ET, and it was Slim Jim breakouts galore. The downgrade, which, by the way, is no surprise to the Generals, provided the early emotion as the major index prices traded down to their intraday lows in the 10:30 a.m. time period.

The SPX ($SPX.X | Quote | Chart | News | PowerRating) closed higher than the previous two days at 1114.35, -0.1%, while the Dow ($INDU | Quote | Chart | News | PowerRating) was +0.2% at 10,238. The Nasdaq ($COMPQ | Quote | Chart | News | PowerRating) closed just above its 200-day EMA of 1935 at 1937 on an afternoon reversal from the 1921 intraday low. The .618 retracement to 1865 from 2065 is 1947. The (QQQ | Quote | Chart | News | PowerRating) was -0.4% at 35.60.

NYSE volume would not have surpassed one billion shares without the program activity starting at 2:00 p.m. and still managed only 1.12 billion shares for the day. The volume ratio was 48, which is also the 4 MA. That is an improvement from the 35 4 MA on Thursday when the 5 RSI was 20 and the SPX closed at 1109.10, which was the high end of the short-term oversold condition zone. Breadth was +439 and the 4 MA now +279. The 5 RSI is up to 35.

In the sectors, it was all about the semis as the (SMH | Quote | Chart | News | PowerRating) finished at 34.67, -2.0%, but was 34.10 on the 10:05 a.m. bar, -3.6% from the previous 35.37 close. Sequence traders celebrated as the -2.0 volatility band was 34.25, and price was also out to the -3.0 standard deviation band based on a specific standard deviation channel period that was covered in the seminar. What means bad to the TV media is most often good for the trader.

For Active Traders

The SMH Trap Door ran to 34.52, then retraced down to 34.15 before the afternoon programs carried the SMH to a 34.73 intraday high, closing at 34.67. The reversal of this -2.0 volatility band at 34.25 was the first opportunity, and the Slim Jim breakout between 34.34 - 34.20 was the second, as it ran to 34.73. The SPY, DIA and QQQ were not as discounted as the SMH, but obviously all had good Slim Jim breakouts, with, for example, the DIA breaking above 102.10 to 102.79.

Today's Action

In yesterday's commentary, I said the better scenario was early red this week going into the upward time bias of 07/14 - 07/17, so Monday was a good start, especially for the QQQs which held its 200-day EMA of 35.24 all day and finally trading up to 35.70 and closing at 35.60. It remains a daytrading only zone if the SMHs still remain above the price action zones outlined in the 07/18 commentary.

I don't mention longer-term positions much because you are well aware of this corner's long synthetic straddle play which are doing quite well now with this current move and the increase in implied volatility. I have prodded you many times into thinking about how you are handling your long-term index proxy holdings, especially into this much higher risk period with the election, etc. I told you that this corner had taken advantage of the implied volatility drop to hedge with index puts. The AIV for the QQQs had declined to below 17% on 06/25, which was the 52-week low, and that was surprising to me with the ever-increasing terrorist threat. The QQQ AIV was up to 21.6 as of yesterday.

Today's daytrading focus remains with the semis and brokers which were the most oversold coming into yesterday, with the 5 RSI below 10 on Thursday along with the Chande Momentum Oscillator (20) down to the oversold -50 level. The XBD closed at 119.76 after hitting a 117.95 intraday low vs. the first price action zone which I gave you on a previous chart of 117.74 - 116.54. The zone below that is 108 - 106.44. In addition to the semis and brokers, the energy stocks are also a prime focus with the names mentioned yesterday like (SII | Quote | Chart | News | PowerRating), (WFT | Quote | Chart | News | PowerRating), (SLB | Quote | Chart | News | PowerRating), (DO | Quote | Chart | News | PowerRating), (CAM | Quote | Chart | News | PowerRating), (RDC | Quote | Chart | News | PowerRating) and (NE | Quote | Chart | News | PowerRating) all still in daily chart setups.

Have a good trading day,

Kevin Haggerty