Here's How We Start The Week

Yesterday's reversal after the opening trade-through entry to new rally highs of 1063.65 on the SPX, -0.8% on the day, also put it net negative on the week by -0.8% and for the second week in succession closed below the midpoint and in the bottom 34% of the weekly range. The Dow ended the week -0.4% while the Nasdaq and QQQ were -2.1% and -2.2%. Friday's reversal was a 15 1/2 point wide-range bar with a 1050.35 close in the bottom 14% of the range.

NYSE volume was 1.34 billion with a volume ratio 34 and the breadth -540. The sectors were mixed with the Semis/SMH taking their second hit at -3.4% after a -2% day on Thursday. This offset the +3.6% Wednesday gain and the SMHs finished the week with a net -3.9% loss. The XBD took a -4.1% hit on Friday, and that put the week's net loss at -4.8%.

On the green side after three big days, the PPH was +6.2% for the week followed by gold, with the XAU +5%, and OIH +2.2%...certainly not the leadership I want to see right here prior to possible new highs. The cyclicals (CYC.X | Quote | Chart | News | PowerRating) -- which along with the semis and brokers are key market barometers -- was a net loser on the week at -1.7%.

For Active Traders

Friday was the third run at the 1060 zone and I guess you could say that Friday's reversal was also another trip to the bottom of the current trading range with the low close being 1046.57 vs. Friday's intraday low of 1048.11.

The E-minis gave you a first-entry long trade above 1058.50 on the 9:30 AM opening and traded up to 1064.24 on the 9:50 AM bar, but it was not to be, as the contra move reversed previous highs and was a knife down to the 240-EMA and the 1054 low. That was a good entry level but the trade only ran to 1059.25 before trending down for the remainder of the session. Price accelerated when making the new low below 1054, hitting an intraday low of 1048.11 and closing at 1050.35.

I have included the daily charts of the Nasdaq and SPX, which point out the negative momentum divergences as price enters the zone of confluence. The Nasdaq made its three successive tops and you can see the 1,2,3 on the MACD going in the opposite direction -- not what you want to see. This is the opposite scenario from the beginning of this rally from the 1253 retracement low on 3/12 where this rally leg got started

When I see a divergence like this with three up and three down, it tells me careful as you go, and that there is not a position edge here until the situation changes, and it doesn't matter whether price moves up some through he confluence zone or not -- daytrading only.

The SPX points out the same negative divergence with three up and three down, but it is also with a rising wedge in price as volatility has narrowed. In fact, the AIV (average implied volatility) on the SPX and Diamonds has gotten down to the 14 zone. This current scenario makes one feel good about having the downside protected with cheap index puts but still able to participate on the upside.

For Today

We start the week still range-bound as the SPX closed Friday below the midpoint of the trading range. The SPY closed at 105.46, with the 20-day EMA at 105.23 and the range low below that at 104.80. The 106.95 high on Friday was a new intraday high with the three high range closes so far being 106.43, 106.33, and 106.36, so that is a better upper boundary line rather than a futures-induced or emotional opening new high.

The major indices are neither overbought nor oversold, so you are still range trading, buying the low end and selling the upper end with tight stops that enable you to double and reverse on a breakout either way.

Both the SPY and DIA finished Friday with potential 1,2,3 bottom setups on the 5-minute charts as did the SMHs. The QQQs made a 1,2,3 lower low at 4:00 PM and then ticked up to 35.04 by 4:15 so there is nothing defined to carry over

Have a good trading day.

Kevin Haggerty