Traders ride energy, semis and gold

Kevin Haggerty is the former head of trading for Fidelity Capital Markets. His column is intended for more advanced traders. Kevin has trained thousands of traders over the past decade. If you would like to be trained by him, click here. or call 888-484-8220 ext. 1.

2006 started the year with energy and gold as the OIH was +7.3% and the XAU +8.0% the first two days before giving back 2.0% yesterday (see 1/3 commentary). The energy stocks were the initial focus because crude (CLH6) was in a 1,2,3 double bottom pattern at its 200-day EMA, which is now 58.90. It hit 57.50 on 11/30/05, rallied to 63.45 on 12/13/05, then declined to 58.10 on 12/21/05. The double bottom follows the decline in crude oil from 70.70 on 09/01/05. Because of the 1,2,3 double pattern setup, a trader would look to play retracements in the OIH and related energy stocks, which is exactly what happened. Nothing cerebral about it--just taking what the market gives you. No predictions involved, just fact (see charts: CLH6 and OIH).

The SPX closed flat yesterday at 1273.48 with the Dow the same at +2 points to 10,882.  The only green move of note was the SMH at  +2% on a third straight up-day and is +6.2% so far in 2006. The OIH is +5.3% and XAU +5.9% year-to-date. NYSE volume was 1.78 billion shares, with the volume ratio neutral at 50 and breadth +337. The SPX remains in the same trading range that began 11/21/05 (see SPY chart).

There are only three things that an index can do when it reaches a significant price zone, and that is to reverse, blow right through the zones to the next level or consolidate in a range, which is not good for the long synthetic straddles due to time decay with no adjusted volatility moves. However, there is plenty of time remaining.

The same empty suits who said the inverted yield curve was different in January 2000 are saying the same thing now, as the curve is again slightly inverted and this has almost always preceded a softness in the economy. But far be it for these 'suits' to discuss that on TV this morning as they as they droned on about some analysts that got fired from Morgan Stanley in the strip club trip.  Give us a break Squawk Box--get back to the business side of life.

There is no question where the early 2006 action is for daytraders, but until we see something change that is where we should remain

Have a good trading day,

Kevin Haggerty