Daytraders Have Significant Volatility Edge

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.

After early declines on both Wednesday and Thursday, the SPX and $INDU had magic reversals, both of which started in the frequent 2:15-2:20 PM program period each day. The SPX reversed +28 points, and the $INDU +205 points from their intraday lows. Yesterday it was +18 and +154 points. On Wednesday, the SPX finished only -0.2%, closing at 1515.88 off the 1489.56 low, while the volume ratio was negative at just 36 and breadth -912. The $INDU, which reversed +205 points, closed down only 1 point to 13675. I would say that the PPT had a very aggressive afternoon, in what has become the United States banana republic stock market. Yesterday was the same deal, except the internals were neutral, with the volume ratio 49 and breadth -93. NYSE volume finished at 1.6 billion shares. I don't want to throw the PPT completely under the bus, because there are some well-known very large mutual funds with October fiscal year ends, so with only a few days left in the month, they probably made a pre-emptive move.

This week has been heavy with news, with the Merrill Lynch write-down (more to come), crude oil setting a record by trading over $92 on the NYME yesterday, and the $US Dollar declining once again, with foreign sellers of US equities for the first time since 1998. The current liquidity squeeze means that the Fed will cut rates again, so the $US Dollar will decline, gold will rise, in addition to commodities, and there will be more pressure on the equity markets, which will force the PPT to get even more aggressive, to hold their finger in the dyke. The SPX price levels right now are decoupled from the economic and financial realities.

The semis have imploded since 10/11 to join the financials on the downside, and there are double-digit declines for many big cap stocks reporting earnings with lower guidance for 2008. This will be, and now is, a recession that won't be declared by the Bureau of Labor Statistics, because they will just adjust and revise the numbers, so it doesn't fit a formal definition of a recession. That of course will be the spin by the media also. There is a lot more blood to be exposed in the mortgage securities market, and the related structural derivatives, so that is obviously not a positive going forward for the markets. Not to mention the unhappy homeowners, as they watch their equity disappear by the month. Don't worry folks, the "weasel of economic death" Mr. Charles Rangel, the ranking socialist in Congress, promises the biggest tax overhaul in history. I have a few substitute words for overhaul, but it would not be appropriate in this rag sheet.

Our emphasis in daytrading the extended and contracted volatility patterns in the major indexes and ETFs has been spot on, and it avoids the emotional trading decisions that get triggered by the spin from the empty suits on CNBC every time a report comes out. The stock emphasis has been for a long time, and is now, the energy, commodity and multinational stocks, in addition to some selected technology stocks since the positive seasonality started in July. Any significant rally from here will be a chance to put on advantageous major index short positions.

Check out Kevin's strategies and more in the 1st Hour Reversals Module, Sequence Trading Module, Trading With The Generals 2004 and the 1-2-3 Trading Module.

Have a good trading day,
Kevin Haggerty