Get Ready To Play The Game Both Ways

Click here to listen to Kevin's conference call from today.

What Wednesday's Action Tells You

The SPX ($SPX.X | Quote | Chart | News | PowerRating) hit an 1131.54 intraday high last week and could not get past the 1135 - 1141 anticipated resistance zone, in addition to the downtrend channel line. The Dow ($INDU | Quote | Chart | News | PowerRating) peaked right at its downward channel line at 10,363, hitting a 9978 intraday low on Tuesday and below its 200-day EMA of 10,101 and 233-day EMA at 10,058. The SPX 200- and 233-day EMAs are 1098 and 1092. The intraday low on Tuesday was 1101. The five-week rally was +6.7% for the SPX, in line with previous bounces to the downtrend line. I have included both daily charts which highlight all of the trading range channel moves, and it also reviews my perspective on where the game is being played now so as to anticipate key price zones in conjunction with short-term overbought and oversold levels.

Yesterday's market action had a month-end touch to it as the SPX traded in just a 5 point range between 1112.38 - 1107.36 until a 2:30 p.m. - 4:00 p.m. ET mark-up into the 1114.80 close. The Generals seem determined to keep the year-to-date price positive, which is above the 12/31/03 1111.92 close.

The SPX closed at 1114.80, +0.4%, with the Dow +0.6% to 10,136 and back above the 10,100 200-day EMA.

The semis were green all day with the (SMH | Quote | Chart | News | PowerRating) +2.0% on less-than-average volume and carrying the (QQQ | Quote | Chart | News | PowerRating) to a +1.5% 35.08 close. All of the major sectors were green, except the (OIH | Quote | Chart | News | PowerRating)s, -1.6%, which has been on an upside tear into the $50 oil price.

NYSE volume was 1.4 billion with the volume ratio 60, but breadth was just +326 which indicates that volume was concentrated in the big-cap, institutional window-dressing stocks into month-end.

Today's Action

I have also included the "520 Trend" chart, starting from the 1061 Aug. 13 low. I have overlaid the current framework in both directions, which is in anticipation of higher-probability price zones. This current reflex is coming from the 200-day EMA zone and yesterday's 1101 low, in addition to a positive oscillator divergence from a short-term 5 RSI oversold condition. The upside levels are indicated, and we can't know whether it will be a 1,2,3 lower top from one of these zones or whether it will trade above 1132, where an RST and 1,2,3 higher top can possibly set up. The point is we are ready to play the game both ways starting with intraday entry.

Those of you who have signed up for my "Inner Circle" program should save this chart, as I will expand on it as price evolves, in addition to further sequence.

The only thing I did before leaving last week was to put on an election long synthetic straddle as implied volatility is at the lows. I would say there is a high probability that this election will provide some volatility, in addition to the terror risk involved going forward. Went out three months on the options.

Today is the last day of the 3rd quarter so this corner will only be involved in the highest probability setups, if they occur, and will not be taking any probe trades in neutral price zones.

Have a good trading day,

Kevin Haggerty