A Simple Strategy with Powerful Results

From 1990 to 1997, Kevin Haggerty served as Senior Vice President for Equity Trading at Fidelity Capital Markets, Boston, a division of Fidelity Investments. He was responsible for all U.S. institutional Listed, OTC and Option trading in addition to all major Exchange Floor Executions. For a free trial to Kevin's Daily Trading Report, please click here.

In the Tuesday commentary, I said that "month end is Thursday, so the Generals want to prevent the SPX from having an "air pocket" by taking out the previous 1200.44 bear market low." Yesterday, there was a "magic move" of +12 points in the last 25 minutes of the session to close the SPX at 1284.26, which is also above the June 1280 close, so this month has just today to COMPX finish on the plus side. Under normal conditions, when crude oil oil rises +4.58 points (+3.8%) as it did yesterday, the SPX would more often lose -1.7% rather than gain it. The INDU was +1.6%, but the Tech indexes were quiet with the QQQQ +0.6 and COMPX +0.4.

The market leadership was all energy and commodity related, as the XLE was +6.0%, and OIH +5.9%, while the Coal and AG Chemical stocks also had big gains. These sectors have been correcting to their long term moving averages for the first time since the 1257 SPX 3/17/08 low, and that made them the prime trading focus for our Trading Service members, as it was anticipated that the hedge funds and Generals would come back and run them again. What else do they have to do?

NYSE volume was 1.48 billion shares yesterday, with the Volume Ratio 71, and breadth +1055 The financials were up again with the XBD +2.5, and BKX +2.4, but the fine print in the Merrill Lynch (MER | Quote | Chart | News | PowerRating) deal, as indicated by a bank analyst, and not reported by the empty suits on CNBC, is that the buyer simply bought a call on those MER assets, and with minimal risk, which falls back to MER should the securities decline a fixed amount. The MER capitulation will not turn the "derivative meltdown" around, and it will get worse before it gets better.

The closing mark-up agenda yesterday has taken the INDU, and SPX almost back to the .382 RT levels (11709 and 1292) to the 5/19/08 highs, in addition to other resistance, as you see on the INDU chart, so if they can take out those levels, the probability is that they might hit the next price zone (.50RT), but it certainly doesn't look that way this morning with the SPX futures -7.0 PTS as I finish this at 8:35AM.

There were excellent 1st Hour reversal strategy long entries yesterday before the 10:35AM energy report, and they were almost all on the 10:20AM bar, so there was definitely a leak about the report, as shown by the obvious front running. So what else is new, that is how the "Casino" operates. I included the XLE trade setup, which is a 1ST Consolidation B/O to new intraday highs, with entry on the 10:20AM bar above 73.87. For our savvy trading service members there was also a Trap Door short entry in a couple of the major indexes, and in the case of the DIA, it was from the +1.5 VB zone, with entry on the 10:35AM bar, in concert with the energy report. It declined from 115.54, to 114.03, but in the afternoon it reversed back up to a 115.82 close, despite the rise in crude oil because of the month-end agenda. However, you took a nice chop out of the morning decline, at the same time as you were making it on the long side in energy stocks. The strategies are simple, but the results are powerful.

The next commentary is Tues 8/5/08

Have a good trading day!

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