Trap door reversal strategy and symmetry

It is a short holiday week, and any weakness is usually on the first 2 days, with the bias up on Wednesday and Friday. The SPX is up 6 straight days, and 9 of the last 10, with the market short-term overbought, so if the week starts red, it should be no surprise. Liquidity gets thin on Wednesday and Friday, which results in lots of random price movement, as it is easy to influence prices with little volume. The SPX made a new closing high Friday to 1401.21, +1.5% on the week. 4-day MA's of the volume ratio and breadth are 63 and +600, with the 5-RSI 83.71. The initial minor support levels on early weakness this week are SPX 1390, $INDU 12194, QQQQ 42.95, $COMPX 2375 and IWM 77.15.

The energy stocks were the primary trading focus for daytraders on Friday (11/17 commentary), and there were significant gains. The OIH gapped down on the opening bars Friday, trading to 133.75. This set up the Trap Door reversal above 134.24 (9:45 AM bar), which traded up to a 137.35 intraday high before closing at 136.85. Traders who missed the Trap Door reversal got a second chance with a 1-2-3 HB entry above 134.88 on the 11:40 AM bar. The initial Trap Door entry had significant symmetry, with the -1.0 VB at 133.47, and the .786 Fib retracement to the last significant low (129.91) at 133.74. Also, the 134.24 entry was the 233 dema, so it was a re-cross to the upside. There were obviously many similar setups in the OIH component stocks on Friday. Strategies and how they are combined with the primary tools I use are explained in the different trading modules.

With many key trading stocks now extended over the past 10 days like the SPX, there is no daytrading edge right here on the long side. However, the current energy stock retracement to the 200-233 dema zone will continue to provide opportunity.

Have a good trading day,
Kevin Haggerty

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.