Contra Day

So much for the Hussein Hustle, as the early overreaction produced the contra trade you were prepared for. The SPX ($SPX.X | Quote | Chart | News | PowerRating), after a big green pre-opening futures, gapped up to the Fib extension zone mentioned in yesterday's commentary. There was a technical problem on the floor that created a lot of the artificial up openings by the specialists at 9:30 a.m. ET, before many of the brokers could get out to the posts because of moments of silence imposed by the Exchange. 

The intraday high of 902.68 came on the 9:35 a.m. ET bar. (See your five-minute chart.) Then the 9:40 a.m. ET bar was a Change in Direction bar with a lower high and low and a close in the bottom of the range. The first short entry was below the 899.30 low of the 9:40 a.m. ET bar. The next entry was to new intraday lows below 893. Funny how that .38 retracement from 965 - 776 keeps coming into play both ways, along with the other awareness levels. Hint.

The SPX went sideways from 12:30 p.m. to 3:00 p.m. ET in an 884 - 880 Slim Jim. This was taken out just after 3:00 p.m. ET as the SPX traded down to an 872.38 intraday low, closing at 873.52, or -2.0% for the day. The major indices were carbon copies on the day. 

The SPX should break the 870 low to follow suit with the Dow ($INDU | Quote | Chart | News | PowerRating) and Nasdaq Composite ($COMPQ | Quote | Chart | News | PowerRating), which have already broken their .50 retracement levels. The (QQQ | Quote | Chart | News | PowerRating)s will break below 22, which is the neckline of a daily chart head-and-shoulders pattern, while the (SMH | Quote | Chart | News | PowerRating)s did so yesterday to new bear market lows. For the SPX, there is a confluence of numbers between 855 - 845 and a stronger one around the 825 - 830 zone. A little downside carry through, and the major indices and SMHs are entering longer-term band levels.

The (PPH | Quote | Chart | News | PowerRating) hit our key zone mentioned in prior commentary for a head-and-shoulders short entry below 71.25. They closed at 71.10 yesterday on a wide-range outside reversal bar, but on low relative volume, so stay intraday with any short unless you go home with a cushion profit. 

The (BBH | Quote | Chart | News | PowerRating)s are also close to breaking a head-and-shoulders pattern to the downside. Early entry is below yesterday's low of 80.60. Only take trade-through entries on anything you daytrade, and second entry is better following wide-range-bar down days like yesterday. 

The Nasdaq closed at 1260 and accelerates below 1250 and again below 1200. This could happen as the Generals continue to blow out the tech dogs into quarter's end, along with possible redemptions.

Sequence daytrading thrives in volatility because we don't care which way the market goes and are not slaves to every piece of news and Program Gang action. We react to the overreactions.

You have your awareness levels for today, and also check today's volatility bands for the indices, HOLDRs and major option stocks. The stock bands are a goldmine if you work them every day. I see big early red in the futures, so hopefully we'll get a pretty good gap down opening and get a chance to play. I had a crash in my computer hard drive, I lost a lot of e-mails, many of which I had not answered yet. I'm now back up and running on another couple of computers with the same Internet address. So, I can't retrieve them, so if you want to resend, please do. If not, I'll respond whenever I get them.

Have a good trading day.

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

Five-minute chart of Tuesday's NYSE TICKS