The best strategy for this market

The SPX and most sectors reversed to the downside in the 10 AM period. Some political grandstanding sent all the futures lower, which set up some afternoon energy reversals. The SPX made a few choppy intraday reversals after the decline but finished the day at 1301.74, -0.5%. The Dow was also -0.5% to 11,283, with the QQQQ -0.2% 41.87. The TLT led the downside at -1.2%, while the only green finish was the SMH, +0.9% and XAU, +0.7%. NYSE volume was 1.65 billion shares, with the volume ratio 38 and breadth -819. This was the third straight down-day for the SPX and Friday is month-end, so the bias is for the market to be higher Friday than Tuesday's close. If there is continuation weakness in the SPX today, there is initial support at the 1296 - 1294 level, which is also a good zone for some intraday setups.

The intraday volatility is best in the energy, gold, copper, steel and other commodity-related stocks, in addition to selected semiconductors like (MRVL | Quote | Chart | News | PowerRating), (BRCM | Quote | Chart | News | PowerRating), (NVDA | Quote | Chart | News | PowerRating), and (MCHP | Quote | Chart | News | PowerRating), to name a few. Other profitable sources for traders have been the brokers, transportation and defense stocks. There continue to be short-side opportunities in the home builders and selected retail stocks..

My overall market opinion has been and still is that Wave 5 (bull cycle high) completes in the 1305 - 1385 range. That observation was made after the SPX 1060.72, 08/13/06 Wave 4 low was confirmed. Equity allocations should be significantly reduced by now, or at least protected. The strategy that makes the most sense to me based on the current time and price of this bull cycle and the low implied volatility is Delta Neutral Long Synthetic Straddles for those of you who have option experience. This enables you to capture a significant move in either direction with a defined risk. The next key SPX zone is the 1323 .707 RT to 1553 from 769 through 1328, which is the 2.618 extension of Wave 4 (1163.23 - 1060.72).

Have a good trading day,

Kevin Haggerty