3 strategies for traders

The SPX had a daily range of just 4.1 points vs. the 3.8 points on Monday and finished flat at 1325.14 vs. 1324.66 on Monday. There were no divergences in the internals, with the volume ratio neutral at 51 and breadth -58. NYSE volume was the lightest of the last six days at 1.51 billion shares. The price-weighted $INDU was +0.5% as they ran (GM | Quote | Chart | News | PowerRating) to 9.6%, with the media doing the 12,000 cheerleading all the way. The QQQQ was -0.4% to 42.04 and Nasdaq -0.3% to 2338. The $INDU has rising prices for three days, with the Dow volume declining for the same three days, as the leadership rotates in about ten stocks, which highlights how useless a narrow price-related index is to other than those with the capital to manipulate it. Energy, gold and copper stocks were all up, with technology to the downside, the led by the semiconductors, with the SMH -1.0%. The SPX was +1.0% last Friday, with a 1325.76 close and almost the same yesterday at 1325.44. In three full trading days the SPX made 71% of the advance in the first ten minutes on Friday after the jobs report/futures gaming and then only 3.3 points for the rest of the three days.

The erratic price movement continues on any announced news and because of the nervous market, the futures are easily gamed. The large mutual funds have become a herd of S&P 500 index look-alike funds, each with their own tweaking methods, hoping to outperform by a little bit. It is more like "no surprises, keep collecting the fees." The buy programs and futures acceleration forces them to participate on any advance, so they hit their little VWAP execution buttons and go along...anything to avoid making a real trading decision.  It is similar in an eerie way to the funny money Internet bull market when they knew the valuations were ridiculous but were forced to go along because the "portfolio manager down the street" syndrome took hold and many were forced to buy stocks at what they knew were ridiculous valuations just to maintain performance with their competition.

Traders are enjoying something similar now, provided they have been trading the energy, gold, copper, steel and other precious metal-related stocks. The movements are erratic and position traders often get whipsawed in short-term positions because of the volatility. However, daytraders who know how to trade expanding volatility using the volatility bands and RST strategy in conjunction with the First Hour strategies (Trading with the Generals, First Hour Reversal Module and Sequence Trading Module) continue to excel in their trading.

The FOMC rate meeting is today and consensus is another quarter-point increase, but the futures will be gamed as usual when they give the "pause" post-meeting statement, which the media will hype. Meanwhile, the $US heads South, commodities continue to rise and signs of wage/price inflation continue to surface. When there is no more room to raise prices and unit costs increase, the profit margins will decline (economics 101).

This is a good day to do nothing until and if the futures get gamed on the FOMC meeting statement.

Have a good trading day,

Kevin Haggerty