Key Trading Strategies Yesterday

Kevin Haggerty is a full-time professional trader who was head of trading for Fidelity Capital Markets for seven years. Would you like Kevin to alert you of opportunities in stocks, the SPYs, QQQQs (and more) for the next day's trading? Click here for a free one-week trial to Kevin Haggerty's Professional Trading Service or call 888-484-8220 ext. 1.

It was another pause day after Friday's move to the SPX 1532.91 close. The index has closed the last two days at 1531.05 and 1533.70, with highs of 1535.34 and 1535.15. This double inside bar setup for the SPX is in position for the "gang" to make a new cycle high above 1540.56 into the end of this second quarter and 6-month performance report card. It's not about fundamentals, it's about how much the Generals and hedge funds mark up their portfolios in spite of the ever increasing negative economic environment on top of the weak $US Dollar. During this rally off the SPX 1487.41 low on 6/8, the TLT has bounced off its 82.30 low to an 84.30 close yesterday. My guess is that long-term rates will again move higher, putting pressure on equity evaluations, as a higher return is required to offset the increased interest rate level. The long rates will move higher, not because of a U.S. strong economic recovery, but because of foreign selling of $US Dollar denominated assets. You can see the expectation for higher rates in the long-term market in the recent decline in short-term rates. The $IRX (3-month T-bill) hit a 43.50 low on Monday, versus 47.75 on 5/23/07. It closed yesterday at 45.15.

There was a big dropoff in NYSE volume on Monday to 1.18 billion shares following triple-witch, but there was no weakness in price as the SPX was only -0.1%, and this was negated yesterday, as the SPX closed at 1533.70 +0.2%, while the $INDU was also +0.2% to 13635. Both the QQQQ (-0.2%) and $COMPX were flat. On Monday, the internals remained very short-term overbought, with the 4 MA of the volume ratio 71 and breadth +1226. NYSE volume was 1.46 billion shares yesterday, with the volume ratio 57 and breadth +568. The expectation from this corner was for some weakness after triple-witch and the overbought conditions, but as it gets closer to month-end, that diminishes because the manipulation process will take precedence. No one ever said it was a level playing field.

The market action yesterday was much more trader friendly than the 3 gap opening days in the SPX rally last week. There were excellent contracted volatility continuation trades yesterday in focus stocks like IBM, NOC, RTN, NCR, PCAR and a Trap Door in NIHD at the -1.28 Volatility Band and 480 ema. For the bulls, the SPX yesterday morning gave you a 1-2-3 close entry above 1527.15, or the 5-bar ledge breakout above 1527.59 if you passed on the first entry. There was also a .618 pullback later that ran from 1527.41 to 1535.97. This advance made the bears happy, because it set up the RST short, which traded down to 1529.54 before closing at 1533.20. The examples of these trade setups are in today's trading service, and are available to free trial subscribers, so check it out. The energy sector is off the charts, as the 7-day OIH rally from 165.06 hit a 180.93 intraday high yesterday before closing at 179.50. Crude oil ($WTIC) hit 69.97 yesterday, closing at 69.54, up from 62.43 13 days ago. This sector has been the Trading Service primary stock focus since 10/06 when the OIH hit the key price zone at 118. There is no trading edge, as today is the 8th day of the current spike, from 165.06, and is too much too soon. Obviously a pullback is needed.

Most of the SPX rally last week, as I previously mentioned, came on the big gap-up openings, and I see that "they" have the SPX futures +4.5 points at 8:30 AM, so if that holds and move higher after the opening, daytraders will be looking for Trap Door shorts in the major indexes. The last 8 trading days in the quarter belong to the Generals and hedge funds, and we can just try to catch a directional ride each day. Don't get cerebral and think you are a "market" reader, because you are not, and we are just pawns in the 6-month report card manipulation game.

Have a good trading day,
Kevin Haggerty