The Primary Focus and Strategies

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.

The SPX has declined 10 of the last 12 days, with a +4.3% gain yesterday to 946.43. After trading up to 924.70 on the 9:50 AM bar, it reversed down to the 865.83 intraday low on the 11:10 AM bar, with the -1.5 VB at 864.10. This set up the extended volatility trade for Trading Service members, and the SPX traded up to the 946.43 close, accelerated by a +5.0% "magic move" starting on the 2:45 PM bar. This was certainly a change from the recent last hour dives due to liquidations, margin calls, and redemptions.

It is safe to say that no one really has a handle on when and if the "Paulson New Deal" will work. There are lots of assumptions and few facts so far. The "empty suits" on CNBC tell us the credit spreads are narrowing, but it appears the most improvement in the credit spreads has taken place where the Government either guarantees the issuer's credit-worthiness, or where the Government has become the marginal buyer.

Without these two supports, credit for everyone else is still in tough shape, so unless it happens soon, there will be more significant pressure on the equity market, as you would expect. There will be no bottom in the housing market if the mortgage rates continue to rise like they have over the last 7 trading days since 10/7/08. Last Tuesday you could get a 5.875 60-day lock on a 30-year mortgage, and yesterday the 30-year rate was quoted at 6.38 (according to Bloomberg). The combination of a sinking economy, with rising mortgage and consumer credit rates is not what the market needs right now.

The SPX 865.83 low yesterday took out the 884 .786RT to 840 from 1044, but the last hour "magic move" to a 946.43 close, took out the 942 .618RT, so that is a positive. However, today is an option expiration, and also, the President will be on the TV issuing platitudes about calming the markets etc., so maybe the PPT was instrumental in accelerating that last hour spike in front of the speech, with the intent of following up after the 20 minute speech today. The cheer leading speech started at 8:41 AM with the SPX futures -10 points.

The primary day trading focus has been the major indexes, energy, and defensive issues, and they all had good extended volatility band strategy opportunities yesterday, and we will continue to exploit this focus on a day trading basis. About 80% of the trades over the last few weeks have been extended volatility, and contacted volatility setups, so expect that to continue. There is nothing to do here about increasing equity allocation because that is still only done on scale down weakness as the odds remain high that 769 will get taken out before this bear market ends.

Have a good trading day

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